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An Equilibrium Analysis of the Gender Wage Gap

  • Elisabeth Hermann Frederiksen

    (Department of Economics, University of Copenhagen)

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    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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    File URL: http://www.econ.ku.dk/eprn_epru/Workings_Papers/wp-06-08.pdf
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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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    1. Stefania Albanesi & Claudia Olivetti, 2006. "Home Production, Market Production and the Gender Wage Gap: Incentives and Expectations," NBER Working Papers 12212, National Bureau of Economic Research, Inc.
    2. Aronsson, Thomas & Daunfeldt, Sven-Olov & Wikström, Magnus, 1999. "Estimating Intrahousehold Allocation in a Collective Model With Household Production," Umeå Economic Studies 495, Umeå University, Department of Economics.
    3. Meyersson Milgrom, Eva M & Petersen, Trond & Snartland, Vemund, 2001. " Equal Pay for Equal Work? Evidence from Sweden and a Comparison with Norway and the U.S," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 559-83, December.
    4. Ronel Elul & Jose Silva-Reus & Oscar Volij, 1997. "Will You Marry Me? A Perspective on the Gender Gap," Economic theory and game theory 004, Oscar Volij.
    5. Rosholm, Michael & Smith, Nina, 1996. "The Danish Gender Wage Gap in the 1980s: A Panel Data Study," Oxford Economic Papers, Oxford University Press, vol. 48(2), pages 254-79, April.
    6. Blackaby, David & Booth, Alison L & Frank, Jeff, 2002. "Outside Offers and the Gender Pay Gap: Empirical Evidence from the UK," CEPR Discussion Papers 3549, C.E.P.R. Discussion Papers.
    7. Becker, Gary S, 1985. "Human Capital, Effort, and the Sexual Division of Labor," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages S33-58, January.
    8. Moro, Andrea & Norman, Peter, 2004. "A general equilibrium model of statistical discrimination," Journal of Economic Theory, Elsevier, vol. 114(1), pages 1-30, January.
    9. Nabanita Datta Gupta & Ronald L. Oaxaca & Nina Smith, 2006. "Swimming upstream, floating downstream: Comparing women's relative wage progress in the United States and Denmark," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 59(2), pages 243-266, January.
    10. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," NBER Working Papers 7732, National Bureau of Economic Research, Inc.
    11. Edin, Per-Anders & Richardson, Katarina, 1999. "Swimming with the tide: solidarity wage policy and the gender earnings gap," Working Paper Series 1999:3, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    12. Bonke, Jens & Datta Gupta, Nabanita & Smith, Nina, 2003. "Timing and Flexibility of Housework and Men and Women's Wages," IZA Discussion Papers 860, Institute for the Study of Labor (IZA).
    13. Waldfogel, Jane, 1998. "The Family Gap for Young Women in the United States and Britain: Can Maternity Leave Make a Difference?," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 505-45, July.
    14. Booth, Alison & Jeff Frank & David Blackaby, 2003. "Outside Offers and the Gender Pay Gap: Empirical Evidence from the UK Academic Labour Market," Royal Economic Society Annual Conference 2003 28, Royal Economic Society.
    15. Moro, Andrea & Norman, Peter, 2003. "Affirmative action in a competitive economy," Journal of Public Economics, Elsevier, vol. 87(3-4), pages 567-594, March.
    16. Aloysius Siow, 1996. "Differential Fecundity, Markets and Gender Roles," Working Papers siow-96-01, University of Toronto, Department of Economics.
    17. Apps, P.F. & Rees, R., 1996. "Collective Labor Supply and Household Production," Papers 301, Australian National University - Department of Economics.
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