Academic journal article Economic Inquiry

Worker Effort Decisions and Efficient Gender-Specific Wage-Tenure Profiles

Academic journal article Economic Inquiry

Worker Effort Decisions and Efficient Gender-Specific Wage-Tenure Profiles

Article excerpt

I. INTRODUCTION

During the past thirty years women have increased their labor force participation. Female labor market intermittency has decreased and women's total labor market experience and years of tenure with the current employer have increased. What these trends imply about the evolution of the gender gap in wages depends in part on gender differences in returns to tenure. It is, therefore, surprising that economists have all but ignored the empirical finding that women have higher returns to tenure than do men over a significant portion of their working lives. One reason why this finding has been ignored or treated as an anomaly may be the lack of theoretical constructs which predict an inverse gender gap in returns to tenure.

Several labor market models predict that women should have lower returns to tenure than men. Human capital theory offers the most frequently cited explanation of flatter earnings profiles for female workers. According to human capital theory, gains from specialization and exchange lead to one household member specializing in home production and the other in market work. Since only women bear children, historically the outcome of the exchange has been that women have specialized in home production. Indeed, all surveys of time use indicate that women spend on average two to three times as long on housework as men. As a consequence of this allocation, women anticipate intermittent labor force participation and fewer years overall in the labor force than men. This pattern too is borne out in national surveys, which invariably find shorter average tenure and fewer total years of labor market experience for women than for men. Women typically have shorter completed job spells as well. Hall [1982, Table 5] presents evidence that the gender gap in completed job duration is quite large. He estimates that 63.8 percent of men, but only 49.6 percent of women hold jobs with eventual tenure of at least five years, with 37.3 and 15.1 percent of men and women, respectively, holding jobs with eventual tenure of at least twenty years.

Because of the greater intermittency and shorter anticipated work history for women than men, women will find it optimal to acquire less human capital than men.(1) Lesser quantities of general human capital tends to flatten both the observed earnings-experience profile and the observed earnings-tenure profile. Two factors contribute to this pattern. First, skills deteriorate during periods out of the labor market, as in Mincer and Polachek [1974], which flattens the earnings-experience profile for women relative to men. Second, women anticipating discontinuous work histories select into occupations with flatter earnings profiles to minimize the penalty to labor force withdrawals, as in Polachek [1981].

The effects of firm-specific human capital on gender differences in wage-tenure profiles vary across models. For example, Kuhn [1993] constructs an elegant game theoretic model of gender differences in training and wages. If women have a higher exogenous exit rate than men, in equilibrium they will be placed in jobs with lower levels of firm-specific training. With a positive relation between training and productivity and a common share rate of the costs and benefits of specific training for men and women, the wage-tenure profiles of men will be steeper than those for women.

In contrast, Becker and Lindsay [1994] argue that firm-specific human capital leads to higher returns to tenure for women than men. Becker and Lindsay assume that men and women have the same level of firm-specific training. However, women have greater variance in their opportunity cost of remaining with a firm and so are more likely than men to separate inefficiently. By giving women a greater share of both the costs and benefits of firm-specific human capital through a steeper wage-tenure profile, firms reduce undesirable turnover.

Although human capital arguments dominate the literature on gender differences in the labor market, other models of wage growth predict flatter wage-tenure profiles for women. …

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