Question

Congratulations! You have just been appointed to a commission studying wage discrimination against women. Again, you have been pushed from the frying pan into the fire, as this is a sensitive topic. It is your role to give the background report to the commission, who will subsequently make some recommendations for anti-discrimination policy.

1) There are several theoretical models of labour market discrimination that seek to explain why men and women with equal productivity levels may not be paid the same. Briefly describe in intuitive terms the demand-side approach, the supply-side approach (the crowding hypothesis), and the non-competitive approach involving barriers to mobility.

2) It is true that, on average, women spend less time in the labour market gaining experience, on-the-job training, and other forms of human capital than men do, which is often tied to childbearing responsibilities. Some apologists claim that lower pay for women might be justified, as employers have less of an incentive to invest in workers with higher turnover. On the other hand, this line of reasoning has been countered by some analysts. What is the nature of the critique of those who disagree with the apologists? (An apologist would say that the pay differentials are justifiable based on productivity and that there is no direct discrimination against women.)

3) Empirical research on male-female earnings differentials is required to assess the validity of the models. The extent of the wage discrimination is typically measured by the so-called Oaxaca decomposition effect. Without getting into the technical details of this equation, explain the general idea of the procedure. You should describe the major elements. No graph is necessary.

Answer 1

The crowding hypothesis originated in the US during the women’s union movement of 1890 to 1925. In 1922 British economist F. Y. Edgeworth argued that women’s lower pay was explained by the fact that women crowded into a small number of occupations. Unions had excluded women from “men’s work,” causing an oversupply of female workers and reducing the price (wage) for their labor. Thus crowding was caused by institutional barriers that artificially distorted the operation of the labor market, resulting in lower wages for some groups and higher wages for others.

In 1974 Bergmann analyzed crowding among female workers and since then economists have considered occupational segregation by sex to be a major determinant of the gender disparity in wages

The crowding hypothesis is simple yet very powerful because it employs the fundamental laws of economics, supply and demand, to explain intergroup wage disparity.

Discrimination occurs when devices such as unions and credentialing processes restrict entry; it becomes imbedded in the system and is not necessarily intentional.

There is ample empirical evidence linking occupational crowding and lower wages, though most studies concern sex segregation. Estimates are that 12 to 37 percent of the U.S. gender wage gap is attributable to crowding. Affirmative action policies have widened occupational choice for women and racial minorities. Continued occupational crowding, however, reveals the need for more rigorous enforcement of equal employment law. Crowding is increasingly important as an impediment to equality and efficiency in a globalized economy.

2.

There is no proof that being a mother makes a woman less productive on the job. Discrimination is still a factor—a big one—in the gender wage gap.

The gap is even larger for women of color: black women make 60% of what white men earn; Native American women earn 59%, and Hispanic women earn 55% of what white males make in a year.

Eliminating the gender wage gap can add between $12 trillion and $28 trillion to global GDP by 2025. This is a serious incentive to equalize pay between men and women.

Salaries should be equal regardless of gender, but to have 107 sectors of the workforce pay men more

As men and women grow older, the wage gap grows wider. A study from the National Institute of Retirement Security in the US found that the wage gap grew to 44% by age 80 for women, and that women age 75-79 are three times more likely to fall below the poverty line than men.

3. The standard method for wage decomposition of the O axaca and Blinder methodology has been widely used to examine discrimination in the labor market. The technique breaks down the average wage gap existing between two demographic groups into two summands: the first one shows, differences in qualifications, the differences that are explained by the model; and the second one shows, differences in the structure of the mode

Theoretically there is consensus to say that discrimination against women takes place when the relative wage earned by men exceeds the relative wage that women would have obtained in the case that men and women were paid only taking into account the personal technical characteristics that affect job performance. O axaca (1973) formalized this idea proposing the concept of a discrimination coefficient (D) as a measure of discrimination:

Where is the observed relationship between the male and female wages; and is the women to men wage ratio in the absence of discrimination. If the firms perform in a non discriminating labor market following the principle of minimizing costs, Oaxaca (1973) expresses that:

Where PM_mand PMj are the marginal productivity of men and women, respectively; in other words, accepting the neoclassical assumption that an individual's wage is equal to her marginal productivity