Estimating a Dynamic Adverse Selection Model: Labor Force Experience and the Changing Gender Earnings Gap 1968-93

This paper addresses two questions: What accounts for the gender gap in labor-market outcomes? What are the driving forces behind the changes in the gender-labor-market out- comes over the period 1968–97? It formulates a dynamic general equilibrium model of labor supply, occupational sorting and human capital accumulation in which gender discrimination and an earnings gap arise endogenously. It uses this model to quantify the driving forces behind the decline in the gender earnings gap and the increase in women’s labor-force participation, professional-occupation representation and hours worked. It …nds that labor-market experience is the most important factor explaining the gender earnings gap. In addition, statistical dis- crimination accounts for a large fraction of the observed gender earnings gap and its decline. It also …nds that a large increase in aggregate productivity in professional occupations plays a major role in the increase in women’s labor-force participation, professional-occupation repre- sentation and hours worked. Although of less importance, demographic changes account for a substantial part of the increase in female labor-force participation and hours worked, whereas home-production technology shocks do not.