An Equilibrium Analysis of the Gender Wage Gap

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An Equilibrium Analysis of the Gender Wage Gap

Author Info

Elisabeth Hermann Frederiksen (Department of Economics, University of Copenhagen)

Abstract

This paper develops a theory of the gender wage gap. In a general equilibrium model, spouses devide their labor between a formal sector and a home sector. Due to indivisibility effects, productivity of labor in the formal sector is negatively related to labor used in the home; at the same time labor inputs are complementary in home production. We show that initial beliefs about the gender wage gap are self-fulfilling, and a central result is multiplicity of equilibria. Spouses allocate their labor equally, if they expect to earn the same wage rates, which ex post reinforces equal wage rates; whereas they allocate their labor differently, if they expect to earn different wage rates. The latter situation manifests itself in a gender wage gap. By use of numerical examples, we show that welfare is highest when spouses allocate labor equally. We relate this finding to policy recommendations.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 06-08.

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Length: 31 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:kud:epruwp:06-08

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Find related papers by JEL classification:
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-09-30 (All new papers)
NEP-LAB-2006-09-30 (Labour Economics)

References listed on IDEAS
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