IP602 – Measuring discrimination

Source: Fortin and Schirle (2006)

Source: Goldin(2006), US data

Source: Baker and Drolet (2009) “A New View of the Male/Female Pay Gap”

‘Productive’ characteristics Indicators or human capital – Education levels / years of schooling – General experience in the labour market – Job-specific training and experience (tenure) Industry and occupation categories Union status, public or private sector W = f(S, X, T, I, O, U, P)

Average wages Among men, – Wage m i = a m + b m X m i + u i Average wages among men, given X are: – Wage m = a m + b m X m Among women, – Wage f i = a f + b f X f i + u i Average wages among women, given X are: – Wage f = a f + b f X f 3 parts to the average wage – average level of experience, the return to experience, intercept

Wages of men and women afaf amam bmbm bfbf XfXf XmXm wage f wage m Higher average wages for men are due to more experience on average, higher pay with zero experience, and a higher return to their experience

Oaxaca decomposition Simplified Wage m – Wage f = (a m + b m X m )- (a f + b f X f ) = a m + b m X m - a f - b f X f + b m X f - b m X f Rearrange: Wage m – Wage f = (a m - a f )+ (b m - b f )X f + b m (X m - X f )

Explained vs. Discrimination Explained portion: = b m (X m - X f ) / (Wage m – Wage f ) Unexplained portion: = (a m - a f )+ (b m - b f )X f / (Wage m – Wage f ) If we account for enough productive characteristics, we would describe the unexplained portion as being discrimination against women.

Explained vs. unexplained – US, 1998 Source: table 7-1, Blau, Ferber and Winkler CharacteristicsPercent explained Educational attainment -6.7 Labour force experience10.5 Race2.4 Occupational categories27.4 Industry category21.9 Union status3.5 Total explained58.9% Total unexplained41.1% Wage differential (%)20.3%

Explained vs. Discrimination Restate the previous results: Female – male wage ratio = 80%  unadjusted wage differential = 20% 53% of the 20% is explained by differences in productivity characteristics (11%)  productivity adjusted wage ratio = 91% Ie. If comparing equally qualified men and women, women’s wages are 91% of men’s.