Employer Loyalty, Training, and Female Labor Supply

This paper develops and calibrates a game theoretical model of statistical discrimination against women. It then quantitatively analyzes the effects of tax credits in the form of child-care subsidies on female labor supply, gender wage differences, and labor allocation efficiency using Japanese data. In my model, employers finance employee training without directly observing individual workers' labor force intentions. In an attempt to distinguish female workers who will exit the labor market from those who will stay with the firm, the employers use long-term wage contracts as a screening device. The model suggests that child-care subsidies can bring a drastic change in allocation efficiency by altering the type of equilibrium that characterizes the worker-firm game. I build on this theoretical prediction by applying the model empirically to the Japanese labor market. I find that the Japanese female labor market as it currently stands is best captured by a pooling equilibrium, where employers cannot distinguish between women who will leave the firm and women who will stay, thereby allowing statistical discrimination. I simulate the effect of tax credits and find that a decrease in child-care subsidies could raise efficiency because the equilibrium shifts from pooling to separating, where employers can discern individual women's labor force intentions and provide training opportunities accordingly.