Gender Wage Inequality in the Labor Market

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In many industries across the world, it is commonly found that female workers on average are paid less than their male counterpart. The question raised from the discrepancy in wage is “Why on average are female workers paid less then male workers?” It is a question many economists have brought up and have drawn theories to why this may be. However, solving this issue has yet to happen, for example in 2016 females in the United States made 82 cents for every dollar earned by a Male. Within this paper, I will provide summaries of the theoretical and analytical analyses performed by economists to dive further into the potential underlying reasons for the wage discrimination between male and females in the United States and will view other countries wage gaps as well. For this we will look at wage discrimination at the country and industry level.

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At the country level it is easy to see that on average females make less than men, but this can be misrepresentative of industries. However, we will look at two countries that show the extremes of each spectrum, Japan and Sweden. The Gender wage gap tends to be more pronounced in decentralized market economies and liberal welfare states with weak unions such as Japan than in predominantly social-democratic welfare states with strong centralized unions such as Sweden. In 2002, Swedish women earned on average 83 percent of Swedish men’s wages, while Japanese women earned 60 percent of Japanese men’s wages. As of more recently Sweden has almost eliminated the wage gap. However, it is important to note that the participation rate of women in each society is vastly different and culture/tradition widely explains why Sweden’s Gender Wage Gap is incrementally smaller than Japans. Sweden a more progressive country encourages women to educate themselves and to work in similar jobs as men traditionally work. Japan is structured around male-breadwinner system, where the women will pursue education and jobs, but are expected to marry and make a family in which they will be responsible for the household duties. This would cause a decrease in the number of women in the labor force and discourage further education or job training that will attribute to the wage gap. However, if culture and traditions is a major factor that drives the gender wage gap then why a country such as the United States has a discrepancy in the average wages of men and women. For one, past societal norms for women traditions in the United States were similar to that of Japan, where the women were to play a larger role in the family life and to this day it is still a very large part of females ‘lives. This would in turn have caused the trend of women to select certain occupations as they would need to dedicate time towards the family and household needs. However, it is nearly impossible to point the problem to one source. As women are also still over-represented in poorly paid occupations and some claim that this is chiefly because of women having lower human capital or productivity. In turn this could be more attributed to the factor that women were expected to tend to the household duties and this forced them into lower paying jobs to start. One must also look towards the income inequality among different ethnicities of females as minority females face even more disparity in pay between themselves and males.

According to the human capital theory, education, experience, and certain other qualifications are necessary for success. As women tend to follow the traditional paths within society they will tend to acquire less of the on-job experience that would make them more valuable in the future. Making women have less human capital to start off on average, which means they will receive lower benefits such as higher income. In many cultures, women are perceived as secondary breadwinners who may not be as “capable” and due to this will earn less than a male, the price they must pay to join the workforce. It can be argued that this perspective on women promotes discrimination and lessens their chances to get or choose certain jobs, earn a higher income, and find success in positions not typically held by women in the labor market. Due to this it would make sense that women may tend to seek jobs that are traditionally well-represented by women that happen to have lower pay as they will feel more comfortable in the environment. Women who do enter male dominated occupations do earn more money than other women, but tend to be paid less than comparable men in these jobs.

From the theoretical perspective, Gender differences in qualifications have been analyzed within the human capital model, which basic idea is that every person has some form of human capital. Human capital can be determined as the abilities and skills people have and taken through education, training and experience. The theory behind the pay discrimination may be more that women tend to acquire less labor market experience because they anticipate having a shorter labor life and do not want to invest more time into gaining experience for a field that they will not stay in long enough. This plays into their leisure time as most women (in families) are responsible for the household chores which reduce their leisure/work time. They may need to take care of the children more often and ensure household duties are completed. In a business world where one may have to deal with clients this can become problematic as they may need to be more flexible for their clients and if they are not able to do so because of obligations within the household and their work performance will not match that of a male who does not have these obligations. This may explain why women may tend to choose jobs with more flexibility of scheduling on their end, but most of these jobs will tend to pay less, therefore contributing to the overall wage gap.

Reducing the gender wage gap can be tricky as there are many variables affecting the reason for this and one major variable being the typical fields women enter. To combat this making fields that are traditionally held by men more attractive for women to enter could help close the wage gap. To make the fields more attractive it may be important for there to be more women in higher positions of power. This will most likely turn the tables and open new opportunities for women to pursue as Managers tend to hire people they are more relatable with or in general have similar attributes as they feel comfortable with said person.

The neo-classical economic model assumes that women are paid less than their male counterparts because they invest less in human capital. Sweden, for one, has a high ratio of women in the labor force compared to other countries and this helps attribute towards the less of a gap in the wages between male and females as in Sweden’s society it is more common for women to pursue careers. The reason this is brought up is that Sweden advocates for more gender equality by encouraging females to work versus the other end of the spectrum, Japan, whose culture traditionally has females tending to family needs once married and less focus on work therefore making it difficult for females to have a career/job that could pay dividends in comparison to that of a male. Sweden is based on dual-earner, egalitarian and encompassing gender policies, Japan is structured around male-breadwinner, state corporatist, and liberal market-oriented gender policies. The main point here is that culture of a society plays a large role in the determinant of fields women will pursue within a society, but with that being said why is it that in a country such as the United States does the wage gap remain? Though economists have different theories to why the wage gap between men and women exists they all agree it does exist and that it has been quite persistent throughout the years. The main issue with resolving this issue and determining the driving components is that there are so many variables that could be affecting the wage gap and some are not numerically measurable such as direct discrimination referring to the graph below which displays the wage gap between men and women. I find this graph quite interesting and helpful for understanding the wage gap more in depth. Simply put it displays wage on the y axis and utility on the x axis, through this it can be seen that as utility increases the wage of the individual increases as well. However, men start at a higher wage then women on average and at equal levels of utility men will always on average be paid more than women. The extra line “B” displays additional education attained by a female and how it will close the wage gap. An interesting take on how to close the wage gap through further education.

In general, the wage gap cannot be explained straight forward through theory as there are many different potential variables affecting this. In the second part of the paper I will examine analysis of data gathered showing the discrepancy in wages at an industry level to further display the real issue in wage discrimination between men and women. It will place men and women on level playing fields within the same position, with similar education and experience showing that though the gap may decrease in some of these industries it is still present. We will also look at potential solutions to resolve this issue in the countries that still experience a wage gap by looking at how other countries like Sweden have resolved this problem.

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