Economics of Gender

Chapter 8

Assist.Prof.Dr.Meltem INCE YENILMEZ

Women’s Earnings, Occupation and Education: An

Overview

– The Gender Earnings Ratio• Facts and trends

– Explanations for the Gender Earnings Gap• Occupational segregation• Education

– The Labor Market

The Gender Earnings Ratio or Gap

Measurements of Earnings:– The average or median• Median is more favorable

– Annual, weekly, monthly earnings• Usually weekly earnings exist

– Full time, year-round workers

Measuring the Gender Earnings Gap

Gender earnings ratiowomen’s median earnings

men’s median earnings

=

Gender earnings gap

=1 – gender earnings ratio

Female/Male Hourly Wage Ratios by Age Group

and Year, 1978–1998

Blau and Kahn, 2001

These researchers stated that an increase in the gender earnings ratio could result from two factors:– Better economic status of new cohorts

of young workers (successive cohorts of the same age)

– Better conditions for workers already in the labor market as they move through their own careers (same cohort as it ages 10 years)

Why is There a Gender Gap in Earnings?

• Are there different skills between men and women?– By choice or constraint?• Family Responsibilities• Occupational Choice (or not choice)

• Is there a different return to the same skills?– Labor market discrimination

Female-Male Median Earnings Ratios by Education and Occupation, 2006

Female-Male Median Earnings Ratios by Education and Occupation, 2006 (continued)

Occupational Segregation and the

Gender Earnings Gap

• Occupational segregation has to do with the extent to which there are “men’s jobs” and “women’s jobs.”

• Still, women are highly concentrated in just a few, predominately female occupations

• Does this explain their lower earnings relative to men?

Measuring Occupational Segregation: The Duncan Index

• The Duncan Index is based on the number of occupations and the proportion of men/women in each occupation

• Varies between 0 and 100–0 = perfect integration–100 = perfect segregation

• Formula: Si = 1/2∑|Mi – Fi|–Where M and F are the percentage of

males and female in the labor force who work in occupation i

Example of a Calculation of the Duncan Index

• Case 1: Si = 1/2∑|Mi – Fi| =

½ x { |60 – 0| + |25 – 10| + |10 – 40| + |5 – 50|} = 75

This is a high degree of segregation

• Case 2: Si = 1/2∑|Mi – Fi| =

½ x { |30 – 10| + |25 – 20| + |35 – 35| + |10 – 35|} = 25

Now we have much less segregation

The Duncan Index (continued)

• The greater the number of occupation categories the greater of segregation index

• There is also considerable INTRA-occupational segregation, for example men are more likely than women to hold top positions

Gender Differences in Education and the Gender Earnings Gap

• Men and women graduate high school in equal numbers

• Currently, women are more likely to be college graduates than are men

• Women have increasingly enrolled in professional programs (law, medicine, dentistry, MBA programs) as well

How Labor Markets Work—An Overview of Wage Determination

The basics, supply and demand, in competitive labor markets:– Labor supply• decisions by individuals, HH

– Labor demand• decisions by firms

Labor Demand

• Derived demand– Depends on the demand for the product

produced• Demanders are firms, government,

universities etc.• Demand labor to produce products to sell

for a profit • Employees are paid, w, wage

How Do Firms Decide How Many Workers to Hire?

• Firms make a cost/benefit comparison:– Cost of additional worker is w– Value of additional worker is:– Additional output of unit of labor, marginal

product of labor (MPL)• Law of diminishing marginal productivity of

labor– Price of output produced by additional labor

(p)– Marginal revenue product (MRP) = p x MPL– Firms hire as long as w < or = MRP of last

worker hired

• The labor demand curve is downward sloping because as the wage increases, firms hire fewer workers since they are more expensive

• The law of diminishing marginal product of labor gives rise to the negative relationship between wages and the firm’s demand for labor

• The market demand curve is the horizontal sum of all an individual firm’s demand curves

Labor Supply

• Individuals supply labor to firms• The labor supply curve is upward sloping

because as the wage increases more individuals are willing to work

Labor Supply, Labor Demand and Labor Market Equilibrium

The Comparative Statics of Labor Markets:

Factors that Shift the Labor Demand Curve

• An increase or decrease in the wage rate is a movement along the labor demand curve

• Shifters include situations where: – Labor productivity rises (MPL rises)• more capital• more skills

– Demand for product rises• increase P, MRP

The Comparative Statics of Labor Markets: Factors that Shift the Labor Supply Curve

• An increase or decrease in the wage is a movement along the labor supply curve

• Shifters include:–Changes in population–Changing preferences –Changes in non-earned income

Thinking About Wage Rates

Wages are prices of labor and act as a signal to workers and firms –Unless wages can adjust to reflect

values, labor resources will be inefficiently valued