Wage Structure and Gender Earnings Differentials: An International Comparison

Abstract

Using microdata to analyse the gender pay gap in ten industrialized nations, we focus on the role of wage structure-the prices of labour market skills-in influencing the gender gap. We find wage structure enormously important in explaining why the US gender gap is higher than that in most other countries. We conclude that the US gap would be similar to that in Sweden and Australia (the countries with the smallest gaps) if the United States had their levels of wage inequality. This finding reflects the larger penalty in the United States for those with low skill levels or employed in low-wage sectors. 650/o-75%. The United States was amoung the countries with the largest differ- entials (OECD, ILO, USBLS). This paper uses microdata to analyse inter- national differences in the gender pay gap among a sample of ten industrialized nations. We focus particularly on explaining the surprisingly low ranking of the United States in comparison with other industrialized countries. An advan- tage of an international perspective is that countries vary considerably with respect to governmental policies, women's relative labour market qualifications and wage-setting institutions. Such variability allows one to infer reasons for differences in the pay gap and, by implication, the impact of alternative govern- ment policies. Empirical research on gender pay gaps has traditionally focused on the role of gender differences in qualifications and on differences in the treatment of otherwise equally qualified male and female workers (i.e. labour market dis- crimination). Analyses of trends over time in the gender differential within countries as well as inter-country comparisons of gender earnings ratios have tended to emphasize these types of gender-specific factors. An innovative feature of our study is to focus on the role of wage structure as an additional factor influencing the gender gap. To analyse the impact of wage structure, we adapt a framework developed by Juhn et al. (1991) to analyse trends over time in race differentials in the United States. Our findings suggest that labour market institutions that affect overall wage inequality have an extremely impor- tant effect on the gender earnings gap. 'Wage structure' describes the array of prices set for various labour market skills (measured and unmeasured) and rents received for employment in par-