Gender wage gap and firm market power: evidence from Chile

Abstract

ABSTRACT The main aim of this work is to explain the Chilean gender wage gap using a dynamic monopsony model to estimate the labour supply elasticities at the firm level. Our results suggest that the elasticities of labour supply to firms are small, which implies that firms have labour market power. We also found that Chilean men would earn approximately 22% more than women as a result of the difference in labour supply elasticities by gender, ceteris paribus. Furthermore, we find that in the long run, the magnitude of between-firm differences in elasticities are higher than within-firm differences, which suggests that the gender wage gap is driven by structural factors that generate gender sorting to firms. Finally, since we use the same methodology and restrictions used in previous literatur for the US, we are able to empirically compare the elasticities for a high-income country (the US) are higher than those obtained for a middle-income country (Chile) for both men and women, which suggests higher labour market frictions in middle-income countries. The main difference between the US and Chile comes from the low labour supply elasticity of Chilean women, which appears to be explained from their low recruitment elasticity from non-employment.