Academic journal article NBER Reporter

The Gender Pay Gap

Academic journal article NBER Reporter

The Gender Pay Gap

Article excerpt

Lawrence M. Kahn [*]

Over the past 25 years, the gender pay gap has narrowed dramatically in the United States. In our recent research, we analyze the sources of the relative wage gains for women in the United States, and we study the determinants of gender differences in pay using international comparisons of the gender gap.

Trends over the 1980s and 1990s in the United States

After a long period of constancy at about 60 percent, the gender pay ratio in the United States started to increase in the late 1970s. The pace of change was especially rapid during the 1980s, but it appears to have slowed considerably during the 1990s. We examine the sources of the robust trends of the 1980s in detail and investigate the reasons for the slower gains for women during the 1990s.

Looking first at the 1980s experience, it is striking that the wage gains for women occurred during a time when overall wage inequality increased substantially. This raises the question of how women were able to narrow the gender gap in pay when overall labor-market trends were increasingly unfavorable, for low-wage workers in general, and women were disproportionately represented at the bottom of the wage distribution.

In analyzing the decline in the gender pay gap, it makes sense to start with the two major explanations economists have developed for group differences in pay: differences in human capital investments or other qualifications; and labor market discrimination -- differences in the treatment of men and women who are equally qualified. These two explanations are not necessarily mutually exclusive, and indeed considerable evidence supports each explanation for gender pay differences at any particular point in time. There also may be important feedback effects: discrimination in the labor market may lower women's incentives to invest in their qualifications, and women's lower qualifications reinforce statistical discrimination against them. [1]

Building on earlier work by Chinhui Juhn, Kevin M. Murphy, and Brooks Pierce, we argue that to explain trends over time in the gender pay differential, we also must consider a third factor: overall trends in wage structure. [2] Wage structure refers to the returns the market sets for various skills or for employment in particular occupations or industries. Although wage structure was previously overlooked, both the human capital and the discrimination explanations of the pay gap imply that it plays a potentially important role in determining how women fare over time, For example, despite recent pay gains, women still have less work experience than men on average. This means that if the market return to experience rises over time, women will be increasingly disadvantaged by having less experience. In addition, both the human capital and the discrimination models suggest reasons why women and men are likely to be employed in different occupations and perhaps in different industries. This implies that an increa se in the rewards for employment in "male" occupations or industries will further place women at an increasing disadvantage. In fact, the patterns of rising overall wage inequality for both men and women have been associated with precisely such increases in the market rewards to skill and to employment in high-paying male sectors. This means that, during the 1980s, women as a group were essentially "swimming upstream" in a labor market that was growing increasingly unfavorable for workers with below-average skills -- in this case experience -- and for workers employed in disproportionately female-dominated occupations and industries.

How can we explain the decrease in the gender pay gap in the 1980s, when overall shifts in labor market returns were working against women as a group? Our analysis of this period, using data from the Panel Study of Income Dynamics, [3] indicates that women were able to more than overcome the effect of adverse shifts in overall wage structure (that is rising labor-market returns to skills and to employment in high-paying male sectors) on their relative wages by improving their qualifications relative to men. …

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