IP602 – Measuring discrimination

Source: Fortin and Schirle (2006)

Source: Goldin(2006), US data

Source: Baker and Drolet (2009) “A New View of the Male/Female Pay Gap”

‘Productive’ characteristics

• Indicators or human capital– Education levels / years of schooling– General experience in the labour market– Job-specific training and experience (tenure)

• Industry and occupation categories• Union status, public or private sector

W = f(S, X, T, I, O, U, P)

Average wages

• Among men, – Wagem

i = am + bmXmi + ui

• Average wages among men, given X are:– Wagem = am + bmXm

• Among women, – Wagef

i = af + bfXfi + ui

• Average wages among women, given X are:– Wagef = af + bfXf

• 3 parts to the average wage – average level of experience, the return to experience, intercept

Wages of men and women

af

am

bm

bf

Xf Xm

wagef

wagem

Higher average wages for men are due to more experience on average, higher pay with zero experience, and a higher return to their experience

Oaxaca decomposition

• Simplified• Wagem– Wagef

= (am + bmXm)- (af + bfXf) = am + bmXm- af - bfXf + bmXf - bmXf

Rearrange:• Wagem– Wagef

= (am - af )+ (bm - bf )Xf + bm (Xm - Xf )

Explained vs. Discrimination

• Explained portion:= bm (Xm - Xf) / (Wagem– Wagef)

• Unexplained portion: = (am - af )+ (bm - bf )Xf / (Wagem– Wagef)

If we account for enough productive characteristics, we would describe the unexplained portion as being discrimination against women.

Explained vs. unexplained – US, 1998Source: table 7-1, Blau, Ferber and Winkler

Characteristics Percent explainedEducational attainment -6.7Labour force experience 10.5Race 2.4Occupational categories 27.4Industry category 21.9Union status 3.5Total explained 58.9%

Total unexplained 41.1%

Wage differential (%) 20.3%

Explained vs. Discrimination

• Restate the previous results:• Female – male wage ratio = 80%• unadjusted wage differential = 20%• 53% of the 20% is explained by differences in

productivity characteristics (11%)• productivity adjusted wage ratio = 91%• Ie. If comparing equally qualified men and

women, women’s wages are 91% of men’s.