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An Equilibrium Analysis of the Gender Wage Gap

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  • 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.

Suggested Citation

  • Elisabeth Hermann Frederiksen, 2006. "An Equilibrium Analysis of the Gender Wage Gap," EPRU Working Paper Series 06-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:06-08
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    References listed on IDEAS

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    More about this item

    Keywords

    gender wage gap; household models; household production; labor markets;
    All these keywords.

    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

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