Reviewing the gender wage gap

I've written a couple of times on the gender wage gap (see here and here). While it may be attractive to explain the gap as resulting from discrimination, the factors underlying the gap are actually many and varied. I just read this excellent (and long) review (open access) of the literature by Francine Blau and Lawrence Kahn (both Cornell University), that was published in the Journal of Economic Literature in 2017.

The paper itself contains a lot of detail, and much too much for me to excerpt easily here. However, they first demonstrate some key facts about the gender wage gap in the U.S.:

We have shown that the gender pay gap in the United States fell dramatically from 1980 to 1989, with slower convergence continuing through 2010. Using PSID microdata, we documented the improvements over the 1980– 2010 period in women’s education, experience, and occupational representation, as well as the elimination of the female shortfall in union coverage, and showed that they played an important role in the reduction in the gender pay gap. Particularly notable is that, by 2010, conventional human capital variables (education and labor-market experience) taken together explained little of the gender wage gap in the aggregate. This is due to the reversal of the gender difference in education, as well as the substantial reduction in the gender experience gap. On the other hand, gender differences in location in the labor market—distribution by occupation and industry—continued to be important in explaining the gap in 2010.

There is reason for both optimism and pessimism in those findings - optimism because the size of the gender wage gap has been decreasing, but pessimism because it hasn't fully closed and the remaining gap cannot be fully explained by worker or industry/occupation characteristics. Also on the pessimistic side:

We also found that both the raw and the unexplained gender pay gap declined much more slowly at the top of the wage distribution that at the middle or the bottom. By 2010, the raw and unexplained female shortfalls in wages, which had been fairly similar across the wage distribution in 1980, were larger for the highly skilled than for others, suggesting that developments in the labor market for executives and highly skilled workers especially favored men.

In terms of the factors that may explain the gender wage gap, Blau and Kahn conclude that:

One of our findings is that while convergence between men and women in traditional human-capital factors (education and experience) played an important role in the narrowing of the gender wage gap, these factors taken together explain relatively little of the wage gap in the aggregate now that, as noted above, women exceed men in educational attainment and have greatly reduced the gender experience gap...

...recent research suggests an especially important role for work force interruptions and shorter hours in explaining gender wage gaps in high-skilled occupations than for the workforce as a whole... the interpretation of these findings in a human capital framework has been challenged. Goldin (2014), for example, argues that they more likely represent the impact of compensating differentials, in this case wage penalties for temporal flexibility...

Although decreases in gender differences in occupational distributions contributed significantly to convergence in men’s and women’s wages, gender differences in occupations and industries are quantitatively the most important measurable factors explaining the gender wage gap (in an accounting sense). Thus, in contrast to human-capital factors, gender differences in location in the labor market, a factor long highlighted in research on the gender wage gap, remain exceedingly relevant...

Another factor emphasized in traditional analyses that remains important is differences in gender roles and the gender division of labor. Current research continues to find evidence of a motherhood penalty for women and a marriage premium for men. Moreover, the greater tendency of men to determine the geographic location of the family continues to be a factor even among highly educated couples...

And on discrimination specifically:

The persistence of an unexplained gender wage gap suggests, though it does not prove, that labor-market discrimination continues to contribute to the gender wage gap... We cited some recent research based on experimental evidence that strongly suggests that discrimination cannot be discounted as contributing to the persistent gender wage gap. Indeed, we noted some experimental evidence that discrimination against mothers may help to account for the motherhood wage penalty as well.

And on psychological factors:

While male advantages in some factors, like risk aversion and propensity to negotiate or compete, may help to explain not only some of the unexplained gender wage gap but also gender differences in occupations and fields of study, it is important to note that women may have advantages in some other areas, like interpersonal skills.

Finally, they briefly looked at institutional differences across countries, and noted that:

...the more compressed wage structures in many other OECD countries, due to the greater role of unions and other centralized wage-setting institutions in these countries, have served to lower the gender pay gap there relative to the United States by bringing up the bottom of the wage distribution. This appears to have also lowered female employment and raised female unemployment compared with men, as would be expected if higher wage floors are binding.

The article is a very thorough review of what we know about the gender wage gap (at least, up to 2017). The application of data on the U.S. wage gap doesn't render this paper inapplicable to other western developed countries, because most of the same trends (particularly, a decreasing but still substantial gender wage gap) are apparent in those countries as well. If you are interested in the topic but not familiar with the extensive research literature, this article is an excellent (and broadly non-technical) place to start.

Read more:

• Compensating differentials, preferences, and the gender gap in wages
• The gender wage gap, when pay rates, job choice, and discrimination are not factors