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

  • Limor Golan

    (Carnegie Mellon)

  • George-Levi Gayle

    (Carnegie Mellon)

This paper formulates and estimates a dynamic model of labor supply, occupational sorting, human capital accumulation and discrimination to explain the narrowing gender earnings gap from 1968 to 1993. The paper proves the model is identified and develops a three-step estimation technique. Imperfect information significantly amplifies exogenous shocks: statistical discrimination accounts for 36 percent of the observed gender earnings gap in the mid-to-late 1970s, declining to 22 percent in the mid-to-late 1980s. Differences in preferences are comparatively less important: the gap would have been at least 56 percent smaller in the mid-to-late 1970s and would have nearly closed by the mid-to-late 1980s if it was driven only be preference. Increases in overall productivity and demographic changes account for a large percentage of the decline in the gender earnings gap and the increase in female labor market experience, while a relative increase in productivity raises women's representation in professional occupations.

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Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 301.

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Date of creation: 2008
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Handle: RePEc:red:sed008:301
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  1. Dionne, Georges & Doherty, Neil A, 1994. "Adverse Selection, Commitment, and Renegotiation: Extension to and Evidence from Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 209-35, April.
  2. Alberto Bisin & Piero Gottardi, 2006. "Efficient Competitive Equilibria with Adverse Selection," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 485-516, June.
  3. Hagedorn, Marcus & Manovskii, Iourii, 2008. "The cyclical behavior of equilibrium unemployment and vacancies revisited," Working Paper Series 0853, European Central Bank.
  4. Chesher, Andrew, 2007. "Instrumental values," Journal of Econometrics, Elsevier, vol. 139(1), pages 15-34, July.
  5. Audra J. Bowlus & Zvi Eckstein, 1998. "Discrimination and Skill Differences in an Equilibrium Search Model," UWO Department of Economics Working Papers 9802, University of Western Ontario, Department of Economics.
  6. Jacob Mincer & Solomon Polachek, 1974. "Family Investments in Human Capital: Earnings of Women," NBER Chapters, in: Marriage, Family, Human Capital, and Fertility, pages 76-110 National Bureau of Economic Research, Inc.
  7. Andrés Erosa & Luisa Fuster & Diego Restuccia, 2010. "A quantitative theory of the gender gap in wages," Working Papers 2010-04, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 20 Oct 2010.
  8. George-Levi Gayle & Robert Miller, . "Life-Cyle Fertility Behavior and Human Capital Accumulation," GSIA Working Papers 2004-E16, Carnegie Mellon University, Tepper School of Business.
  9. Albanesi, Stefania & Olivetti, Claudia, 2005. "Home Production, Market Production and the Gender Wage Gap: Incentives and Expectations," CEPR Discussion Papers 4984, C.E.P.R. Discussion Papers.
  10. Jovanovic, Boyan, 1989. "Observable Implications of Models with Multiple Equilibria," Econometrica, Econometric Society, vol. 57(6), pages 1431-37, November.
  11. Martin Pesendorfer & Philipp Schmidt-Dengler, 2008. "Asymptotic Least Squares Estimators for Dynamic Games -super-1," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 901-928.
  12. Pesendorfer, Martin & Schmidt-Dengler, Philipp, 2003. "Identification and Estimation of Dynamic Games," CEPR Discussion Papers 3965, C.E.P.R. Discussion Papers.
  13. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
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  16. Zvi Eckstein & Éva Nagypál, 2004. "The evolution of U.S. earnings inequality: 1961?2002," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Dec, pages 10-29.
  17. Andrea Moro, 2003. "The Effect Of Statistical Discrimination On Black-White Wage Inequality: Estimating A Model With Multiple Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 467-500, 05.
  18. Joseph Altonji & Christina Paxson, 1990. "Labor Supply, Hours Constraints and Job Mobility," Working Papers 651, Princeton University, Department of Economics, Industrial Relations Section..
  19. Joseph G. Altonji, 2005. "Employer Learning, Statistical Discrimination and Occupational Attainment," American Economic Review, American Economic Association, vol. 95(2), pages 112-117, May.
  20. Aguirregabiria, Victor, 2005. "Nonparametric identification of behavioral responses to counterfactual policy interventions in dynamic discrete decision processes," Economics Letters, Elsevier, vol. 87(3), pages 393-398, June.
  21. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation Of Dynamic Discrete Games," Working Papers wp2004_0413, CEMFI.
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  23. Joseph G. Altonji & Charles R. Pierret, 1997. "Employer Learning and Statistical Discrimination," NBER Working Papers 6279, National Bureau of Economic Research, Inc.
  24. Altug, Sumru & Miller, Robert A, 1998. "The Effect of Work Experience on Female Wages and Labour Supply," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 45-85, January.
  25. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, 09.
  26. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
  27. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, July.
  28. Thierry Magnac & David Thesmar, 2002. "Identifying Dynamic Discrete Decision Processes," Econometrica, Econometric Society, vol. 70(2), pages 801-816, March.
  29. repec:cup:cbooks:9780521586115 is not listed on IDEAS
  30. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 147-165, January.
  31. Jacob Mincer & Solomon Polacheck, 1974. "Family Investments in Human Capital: Earnings of Women," NBER Chapters, in: Economics of the Family: Marriage, Children, and Human Capital, pages 397-431 National Bureau of Economic Research, Inc.
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