Gender-Specific Wage Structure and the Gender Wage Gap in the U.S. Labor Market

Abstract

This paper challenges the predominant conceptualization of the wage structure as gender-neutral, emphasizing the contribution that this makes to the gender wage gap. Unlike most decomposition analyses, which concentrated on gender differences in productivity-enhancing characteristics (the ‘explained’ portion), we concentrate on the ‘wage structure’ (the ‘unexplained’ portion), which can be defined as the market returns to productivity-enhancing characteristics. These returns are commonly considered a reflection of non-gendered economic forces of supply and demand, and gender differences in these returns are attributed to market failure or measurement error. Using PSID data on working-age employees from 1980 to 2010, we examine gender differences in returns to education and work experience in the U.S. labor market. Based on a threefold decomposition, we estimate the contribution of these differences to the overall pay gap. The results show that men’s returns to education and work experience are higher than women’s; and that in contrast to the well-documented trend of narrowing gender gaps in skills and earnings, the gaps in returns increase over time in men’s favor. Furthermore, the existing gender differences in returns to skills explain a much larger proportion of the gender wage gap than differences in levels of education and experience between men and women. The paper discusses the mechanisms underlying these findings.