Trends in the Male-Female Wage Gap: The 1980s Compared with the 1970s

Abstract

1. Introduction An interesting pattern emerges when contrasting men's and women's wage growth in 1970s and 1980s. From 1979 to 1989, female wages grew 1.7% per annum faster than male wages. This wage growth in 1980s resulted in a 17% narrowing of gender wage gap. On other hand, from 1969 to 1979 female wages grew at a rate only 0.39% per year faster than male wages, resulting in very little narrowing of gender wage gap (Blau 1998). As noted by Smith and Ward (1989), these contrasting trends puzzled many because it is well known that female work behavior shot up more dramatically in 1970s than in 1980s. If female wage growth is related to increasing labor force activity, one would have expected male-female wage gap to narrow more in 1970s than in 1980s. The purpose of this paper is to identify some of reasons why male-female wage gap narrowed more quickly in 1980s than in 1970s, despite a deceleration of growth in female labor force activity in 1980s. What appears to be case is that predominantly younger and less experienced females entered labor force in 1970s. The entry of women with relatively little human capital brought down growth in women's average human capital (O'Neill 1985), so that despite upsurge of women's labor force participation in 1970s, women's average human capital relative to men's increased more slowly in 1970s than in 1980s. This relatively slower growth in women's human capital appears to have played itself out in 1980s both because number of women joining labor force slowed and because women's labor force attachment as measured by proportion of potential work years actually worked increased (Blau 1998). With these trends, average female human capital increased in 1980s, resulting in greater overall wage gains. Because of stark differences between 1970s and 1980s, this paper concentrates on distinguishing factors that contribute to men's and women's wage growth in two decades. Despite substantial literature on male-female wage gap, interdecade difference in trend has not been adequately examined. In what follows, this paper uses Panel Study of Income Dynamics (PSID) to illustrate effects of demographic changes alluded to above.1 First, it presents wage trends for 1970s and 1980s. Second, it provides direct measures of changes in human capital growth within each decade. Third, to illustrate importance of these demographic trends, especially how new young labor market entrants bring down wages, it shows that higher relative female wage growth in 1980s is reduced and relatively slower female wage growth in 1970s is enhanced when one controls for individual human capital characteristics. These effects are illustrated first by including actual experience-- type variables in a regression whose coefficients measure wage growth, and second by eliminating new entrants from 1970s and 1980s regression analysis. The paper shows that with these controls, increases in female average growth in both 1970s and 1980s were more comparable than previously thought. 2. Recent Literature on Trends in Male-Female Wage Gap This is not first paper to recognize trend in male-female wage convergence. O'Neill (1985), Blau and Beller (1988), Smith and Ward (1989), Goldin (1990), Katz and Murphy (1992), Wellington (1993), O'Neill and Polachek (1993), Blau and Kahn (1997), and Blau (1998) all note that women's wages have risen relative to men. Smith and Ward (1989) find that female relative wages rose between 1920 and when adjusting for worker skills. Goldin (1990), piecing together various data sources, finds a similar long-term narrowing. According to her, the ratio of female to male earnings in economy as a whole rose from 0.46 to 0.56 during period 1890 to 1930, but was virtually stable from 1950 to around 1980 (p. …