Chapter 9 The Gender Gap in Earnings: Explanations Part I Human Capital Theory  definition  investment Differences in Human Capital  education  experience Human Capital Theory  definition  investment Differences in Human Capital  education  experience

What is human capital? skills acquired by individuals & used in labor market acquired through  education  on the job training (OJT) skills acquired by individuals & used in labor market acquired through  education  on the job training (OJT)

unlike physical capital, human capital is  mobile  cannot be sold or traded human capital is  mobile  cannot be sold or traded

like physical capital human capital depreciates  skills become “rusty”  skills become obsolete human capital depreciates  skills become “rusty”  skills become obsolete

we acquire skills, and “rent” them to employers skills imply a certain productivity  and thus a certain wage we acquire skills, and “rent” them to employers skills imply a certain productivity  and thus a certain wage

gender earnings gap women acquire less human capital than men women acquire different human capital than men  and it is less valued in markets women acquire less human capital than men women acquire different human capital than men  and it is less valued in markets

General OJT skills that valuable across firms  computer skills  welding  college degree skills that valuable across firms  computer skills  welding  college degree

Specific OJT skills for a particular or firm, not easily transferred examples  Oswego Gen Ed  forms or procedures at a company  “institutional knowledge” skills for a particular or firm, not easily transferred examples  Oswego Gen Ed  forms or procedures at a company  “institutional knowledge”

Human capital investment education/training is an investment  forgo wages (opportunity cost)  pay tuition, fees (direct cost)  in return for higher future earnings  in return for nonmarket benefits education/training is an investment  forgo wages (opportunity cost)  pay tuition, fees (direct cost)  in return for higher future earnings  in return for nonmarket benefits

rate of return to college  9 to 16% why?  skills are acquired  degree signals that individual is capable of acquiring specific human capital on the job rate of return to college  9 to 16% why?  skills are acquired  degree signals that individual is capable of acquiring specific human capital on the job

experience  age earnings profile  earnings increase w/ age, indicates value of experience  earning flatten w/ age -- skills depreciate over time -- early years of exp. most important experience  age earnings profile  earnings increase w/ age, indicates value of experience  earning flatten w/ age -- skills depreciate over time -- early years of exp. most important

age earnings profile age earnings

Investment in Human Capital costs are incurred up front  tuition, books  lower training wage benefits are off in the future  higher future earnings  higher life satisfaction costs are incurred up front  tuition, books  lower training wage benefits are off in the future  higher future earnings  higher life satisfaction

$100 received in future  less valuable than $100 today to compare costs & benefits  must account for time value  present value $100 received in future  less valuable than $100 today to compare costs & benefits  must account for time value  present value

exampleexample which would you prefer?  $500 today OR $1000 in one year  $500,000 today OR $1 million in 5 years which would you prefer?  $500 today OR $1000 in one year  $500,000 today OR $1 million in 5 years

future benefits are discounted to present  using interest rate  farther a benefit is in future, less it is worth today compare with current costs future benefits are discounted to present  using interest rate  farther a benefit is in future, less it is worth today compare with current costs

internal rate of return (IRR) interest rate where  present value of future benefits = current costs interest rate where  present value of future benefits = current costs

if IRR > than market investment returns  investment is worthwhile if IRR > than market investment returns  investment is worthwhile

exampleexample NYS Lottery $12 million jackpot  $600,000/year for 20 years  or $6 million today what is IRR?  8.9% NYS Lottery $12 million jackpot  $600,000/year for 20 years  or $6 million today what is IRR?  8.9%

Gender Differences in Human Capital why?  what does human capital theory predict? evidence  data on gender differences in education and experience why?  what does human capital theory predict? evidence  data on gender differences in education and experience

IRR & education benefits to education include higher earnings over the work-life if women have shorter work-life,  then their return is lower than men benefits to education include higher earnings over the work-life if women have shorter work-life,  then their return is lower than men

women take time out of labor force  some benefits lost  benefits are earlier in their work life (child bearing years) so present value is larger women take time out of labor force  some benefits lost  benefits are earlier in their work life (child bearing years) so present value is larger

exampleexample

so if women expect to be out of LF for a long time  investment in education may not be rational  so women have less human capital note  women’s investment in education may also include quality of husband so if women expect to be out of LF for a long time  investment in education may not be rational  so women have less human capital note  women’s investment in education may also include quality of husband

general OJT workers accept lower initial wage to train  receive higher wage later women who expect to leave LF may not find investment worthwhile workers accept lower initial wage to train  receive higher wage later women who expect to leave LF may not find investment worthwhile

specific OJT firm wants worker to stay with firm to recoup the training cost firms may be reluctant to invest in women,  who are more likely leave firm wants worker to stay with firm to recoup the training cost firms may be reluctant to invest in women,  who are more likely leave

discriminationdiscrimination if there is labor market discrimination,  women do not get the same return to human capital as men women will investment less in human capital if there is labor market discrimination,  women do not get the same return to human capital as men women will investment less in human capital

EvidenceEvidence look at  education overall level types of skills  experience (substitute for OJT) look at  education overall level types of skills  experience (substitute for OJT)

Differences in education for younger men, women  levels are very similar  but areas of study still different for all, 25+ (2002)  28.5% of men are college graduates  vs. 25.1% of women for younger men, women  levels are very similar  but areas of study still different for all, 25+ (2002)  28.5% of men are college graduates  vs. 25.1% of women

The Gender Gap in Education we do see gaps  in skills  in outcomes  some favor girls/women  some favor boys/men we do see gaps  in skills  in outcomes  some favor girls/women  some favor boys/men

why the gaps?  bias against males or females?  abilities are sex-linked (nature)? why the gaps?  bias against males or females?  abilities are sex-linked (nature)?

SourcesSources How Schools Shortchange Girls  AAUW 1992, 1998 The Myth That Schools Shortchange Girls  Dr. Judith Kleinfeld 1998 NCES How Schools Shortchange Girls  AAUW 1992, 1998 The Myth That Schools Shortchange Girls  Dr. Judith Kleinfeld 1998 NCES

1992 AAUW report girls do worse on standardized exams gap in girls/women in math & science girls more likely to experience sexual harassment girls ignored in classroom teen girls and self-esteem girls do worse on standardized exams gap in girls/women in math & science girls more likely to experience sexual harassment girls ignored in classroom teen girls and self-esteem

1998 follow up girls closing math & science gap  but there is a technology gap girls closing math & science gap  but there is a technology gap

Criticisms of the AAUW report methodology girls perform better on many measures:  better grades  more honors, fewer learning disabilities  better graduation rates  over 50% of Bachelor’s degrees  better at reading, writing methodology girls perform better on many measures:  better grades  more honors, fewer learning disabilities  better graduation rates  over 50% of Bachelor’s degrees  better at reading, writing

Look at several issues grades standardized tests classes in math & science HS dropouts College Enrollment grades standardized tests classes in math & science HS dropouts College Enrollment

Girls get higher grades

note how changing the scale makes the difference appear smaller

but score lower on college entrance exams

why?why? are tests biased against women?  type of questions are grades biased against men? do they pick up different skills?  timed test  willingness to guess who takes the test? what do you think? are tests biased against women?  type of questions are grades biased against men? do they pick up different skills?  timed test  willingness to guess who takes the test? what do you think?

Other testing gaps proficiency tests given to 9, 13, 17 year-olds  boys do better in math, science  girls do better in reading, writing proficiency tests given to 9, 13, 17 year-olds  boys do better in math, science  girls do better in reading, writing

but math/science enrollment is similar

why the proficiency gap? discrimination? nurture?  girls/boys are raised to develop different skills nature?  girls/boys born will different skill advantages discrimination? nurture?  girls/boys are raised to develop different skills nature?  girls/boys born will different skill advantages

other outcomes HS graduation attending college graduating college graduate degrees HS graduation attending college graduating college graduate degrees

Other issues some factors are less easily measured:  self-esteem  sexual harassment  crime victimization  classroom interaction some factors are less easily measured:  self-esteem  sexual harassment  crime victimization  classroom interaction

Differences in Experience recall,  women’s LFP < men’s LFP gap has closed over time so it follows that  women accumulate fewer years of work experience recall,  women’s LFP < men’s LFP gap has closed over time so it follows that  women accumulate fewer years of work experience

as LFP rose in 1900s mostly re-entry of married women  these women would have little experience  so even as LFP has risen, experience gap remains mostly re-entry of married women  these women would have little experience  so even as LFP has risen, experience gap remains

how much of the gap? studies vary from 25 to 50%  combining occupation AND human capital  12 cents of 23 cents studies vary from 25 to 50%  combining occupation AND human capital  12 cents of 23 cents

ProblemProblem we only account for 10-35% of variation in worker earnings with measurable factors not all factors affecting earnings are measurable we only account for 10-35% of variation in worker earnings with measurable factors not all factors affecting earnings are measurable

we cannot measure luck/ connections ability/motivation physical characteristics indirect discrimination  causing women to have less HC luck/ connections ability/motivation physical characteristics indirect discrimination  causing women to have less HC