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The gender pay gap

Blogs review: Actress Patricia Arquette’s plea to address wage disparity between women and men during the Oscar ceremony has lead to interesting

Publishing date
26 February 2015

Blogs review: Actress Patricia Arquette’s plea to address wage disparity between women and men during the Oscar ceremony has lead to interesting discussions in the blogosphere about the measurement, causes and evolution of the gender pay gap.

The evolution of the gender pay gap

Claudia Goldin writes that the mantra of the women’s movement in the 1970s was “59 cents on the dollar” and a more recent crusade for pay equality has adopted “77 cents on the dollar.”

Claudia Goldin writes that of the many advances in society and the economy in the last century, the converging roles of men and women are among the grandest. A narrowing has occurred between men and women in labor force participation, paid hours of work, hours of work at home, life-time labor force experience, occupations, college majors, and education, where there has been an overtaking by females.

Sandra Black and Alexandra Spitz-Oener write that when investigating possible explanations for the narrowing of the gender wage gap, most research has focused on factors such as education and experience, for which changes have been more favorable for women than for men. Francine Blau and Lawrence Kahn write that the narrowing in the U.S. gender pay gap decelerated in the 1990s and gender-specific factors seem to be the source of this slowing convergence. It is difficult to say whether this represents merely a pause in the continued closing of the gender pay gap or a more long-term stalling of this trend.


The residual portion and discrimination

Claudia Goldin writes that the explained portion of the gender wage gap decreased over time as human capital investments between men and women converged. In consequence, the residual portion of the gap rose relative to the explained portion.

Daniel Kuehn writes that it’s very misleading and a mistake to use conditional mean differences in a regression to argue that the gap is mythical. My frustration with the empirics of the wage gap come in whenever – following something like the Arquette statement, or a mention of "77 cents on the dollar" in the State of the Union – people get up and assert that the wage gap is a "myth" or a "fallacy" simply because there are explanations for different contributions to the gap. Some people are tempted to perform the following exercise:

1. Add a bunch of controls in a wage regression.

2. Note that the difference in conditional means between men and women shrinks when you do that.

3. Call the gap a "myth" or a "fallacy".

In another post, Daniel Kuehn writes that you can't simply control for occupation and major and call it a day because people select into occupations and majors based on expected wages, and that selection process influences the observed wage distribution. If any of you are familiar with it, this is the basic point of the Roy model, and it has a variety of applications in labor economics. It is also analogous to the Lucas Critique and the need for some understanding and identification of the structural model in macroeconomics. The short point here that anyone who's gone through an econometrics class should get right away is that occupational choice is endogenous in the wage regression. Controlling for it also controls away part of the wage differential.

Some explanations for the residual portion

Claudia Goldin writes, for some, that earnings differences for the same position are due to actual discrimination. To others it is due to women’s lower ability to bargain and their lesser desire to compete. Others blame it on differential employer promotion standards due to gender differences in the probability of leaving. Wonkblog also points to research showing that women may also be more likely to accept non-monetary compensation for jobs, like healthcare.

Claudia Goldin’s preferred explanation is that the gap exists because hours of work in many occupations are worth more when given at particular moments and when the hours are more continuous. That is, in many occupations earnings have a nonlinear relationship with respect to hours. A flexible schedule often comes at a high price, particularly in the corporate, financial, and legal worlds.

The 2015 Economic Report of the President chapter on the economics of family-friendly workplace policies writes that workplaces have been slower to adapt to changing family dynamics. Two of the most important policies that firms can offer to allow workers to better balance work and family are access to paid leave and workplace flexibility. Paid leave includes access to family leave, sick leave, and other leave that allow workers to take paid time off to care for themselves or a family member. Workplace flexibility generally refers to arrangements that allow workers to shift the time or location of their work through flexible or alternative hours, telecommuting policies, or alternative work locations. It can also include partial employment options such as job sharing and phased retirement of older workers.

Jordan Weissmann writes that the US is one of three countries in the world, along with Papua New Guinea and Oman, that doesn't guarantee paid leave for new mothers. We also offer few protections for part-time workers, which makes it harder for women to keep a foot in the workforce after children. A study by economists Francine Blau and Lawrence Kahn of Cornell University found that, if U.S. family policy looked more like Europe's, employment among U.S. women would have been 7.2 percentage points higher in 2010.


About the authors

  • Jérémie Cohen-Setton

    Jérémie Cohen-Setton is a Research Fellow at the Peterson Institute for International Economics. Jérémie received his PhD in Economics from U.C. Berkeley and worked previously with Goldman Sachs Global Economic Research, HM Treasury, and Bruegel. At Bruegel, he was Research Assistant to Director Jean Pisani-Ferry and President Mario Monti. He also shaped and developed the Bruegel Economic Blogs Review.

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