Equilibrium Wage-Setting and the Life-Cycle Gender Pay Gap (with Noriko Amano-Patiño and Tatiana Baron). July 2020. Cambridge Working Papers in Economics No. 2010.
Abstract: This paper quantifies both worker- and firm-side determinants of the life-cycle gender wage gap. Equally productive men and women could face different wage offers as employers expect gender differences in mobility behaviors, human capital dynamics, and fertility-related interruptions. We develop an equilibrium search model with human capital dynamics and estimate it on NLSY79 data. We find that firms’ differential wage offers towards men and women account for 55% of the gender wage gap for high school graduates and 47% for college graduates, whereas the gender difference in human capital levels is important only for the college group in late career. Gender gaps in search capital and job segregation play a relatively small role. Policies that improve women’s labor force attachment have the largest effect in shifting firms’ offers, and these effects would be enhanced by policies that improve women’s within-job development.
Abstract: Search frictions make worker turnover costly to firms. A three-month parental leave expansion in Sweden provides exogenous variation that we use to quantify firms’ adjustment costs upon worker absence and exit. The reform increased women’s leave duration and made them more likely to separate from pre-birth employers. Firms with greater exposure to the reform hired more workers and increased incumbent hours, incurring a wage cost equivalent to 1.5 workers for each additional worker on extended leave. Manufacturing firms with higher exposure also experienced a decline in sales and valueadd per worker. These adjustment costs varied by the availability of substitutes in the local labor market and within the firm. We also find suggestive evidence that the reform reduced hiring of young women and lowered their starting wages compared to men and older women.
Abstract: The gender wage gap widens substantially over the lifecycle, especially between highly educated men and women. This paper develops an equilibrium search model to study the interactions of three potential explanations for the widening gender gap: human capital accumulation, preference for job amenities, and employers' statistical discrimination in wages and hiring. In the model, men and women differ in quit probabilities, parental leave lengths, and preferences for amenities before and after having children. A novel feature of my model is that employers make decisions on both the “intensive” wage margin and the “extensive” hiring margin as they take into account the above gender differences. Estimating the model on administrative employer-employee data combined with occupational level survey data on amenities from Finland, I find that 44% of the gender wage gap in early career is attributed to employers’ statistical discrimination based on fertility concerns, whereas gender differences in labor market attachment explain 70% of the gap in late career. Both hiring discrimination and preference for amenities draw women to low-productivity jobs early in the lifecycle, and slow down women's career progression in the long run. Counterfactual simulations show that shifting two parental leave months from women to men shrinks the wage gap by 13%. A gender quota at top jobs improves women’s representation in high-productivity positions, but firms undo this policy by exerting more wage discrimination. An equal pay policy counterfactual shows that requiring firms to pay men and women the same wage closes the wage gap by 15% on average, but has unintended consequences as employers adjust on the hiring margin.