Academic journal article Atlantic Economic Journal

Projecting the U.S. Gender Wage Gap 2000-40

Academic journal article Atlantic Economic Journal

Projecting the U.S. Gender Wage Gap 2000-40

Article excerpt

Introduction

There is extensive literature examining the size, determinants, and trend over time in the gender wage gap in the United States. (1) The historical pattern is well established--after near stability through the 1960s and 1970s, the gender wage gap closed substantially during the 1980s and early 1990s. This paper examines whether this trend will continue. With recent college enrollment rates higher for women than men and rapid increases in levels of female labor market experience, prospects appear promising. Furthermore, the pay gap is smaller for the current younger age groups than the older age groups, raising the possibility that this smaller gap may spread to older groups as the young cohorts age. On the other hand, Blau and Kahn [2000] note that convergence appears to have stalled in the late 1990s. Furthermore, future aging of the workforce could impede further female progress.

Surprisingly, there has been little discussion of the future gender wage gap. Blau and Kahn [2000] argue that "at least modest" continued convergence is "plausible" but provide no explicit projections. Stanley and Jarrell [1998] project that the future gender wage gap will fall by about one-third of a percentage point per year based on a linear trend estimated from the results of past gender pay gap studies. Smith and Ward [1984] appears to be the only systematic attempt to project the future trend in male and female relative wages. They projected substantial progress from 1980 to 2000, with the pay ratio rising from 64 percent to at least 74 percent by 2000.

The current analysis is in the spirit of Smith and Ward [1954] in its attempt to project the future trend in the gender wage gap to 2040. The projection exercise aims to shed light on four inter-related questions. First, will women continue to make progress vis-a-vis men? Second, will equality of pay occur soon or will progress be slow? Next, what factors will drive future changes in relative pay? Finally, how sensitive are the projections to their basic underlying assumptions? This paper begins with an outline of the projection method. Assumptions underlying the analysis, together with various extensions, are then discussed. The next section outlines the projections of the demographic structure, educational attainment, and labor market experience. Then, the projected future path of the gender wage gap is examined, followed by an exploration of the sensitivity of the path to altering the underlying assumptions. The final section concludes the paper.

Outline of the Projection Method

This paper begins by sketching the five-step projection method, leaving additional details and extensions to the next section. The first step posits a human capital earnings equation:

(1) ln([w.sub.it]) = [x'.sub.it][[beta].sub.t] + [u.sub.it],

with ln([w.sub.it]), the log of hourly earnings of person i in year t, being determined by a vector of observable human capital characteristics [x.sub.it] and an error term [u.sub.it]. The wage equation is estimated separately for men and women using a 1995 cross-section of individuals aged 25-64 drawn from the Panel Survey of Income Dynamics (PSID). (2) [x.sub.it] is restricted to include the level of education, a quadratic in labor market experience, and a race dummy. As in Smith and Ward (1984), it is assumed that the estimated parameters are stable over time ([[beta].sub.t] = [beta]). The implication of this assumption is that changes in the size of the gender wage gap over time arise solely via changes in mean male and female levels of wage determining characteristics:

(2) [DELTA] [[bar]ln([w.sup.m.sub.it])] - [DELTA][[bar]ln([w.sup.f.sub.it])] = [DELTA][[bar]x.sup.m.sub.it][[beta].sup.m]] - [DELTA][[bar]x.sup.f.sub.it][[beta].sup.f]],

where a bar denotes the mean value and superscripts m and f denote male and female respectively. With this as the key equation, focus switches to projecting the future path of [[bar]x. …

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