Working Paper: NBER ID: w11159
Authors: Casey B. Mulligan; Yona Rubinstein
Abstract: In theory, growing wage inequality within gender should cause women to invest more in their market productivity and should differentially pull able women into the workforce, thereby closing the measured gender gap even though women's wages might have grown less than men's had their behavior been held constant. Using the CPS repeated cross-sections between 1975 and 2001, we use control function (Heckit) methods to correct married women's conditional mean wages for selectivity and investment biases. Our estimates suggest that selection of women into the labor market has changed sign, from negative to positive, or at least that positive selectivity bias has come to overwhelm investment bias. The estimates also explain why measured women's relative wage growth coincided with growth of wage inequality within-gender, and attribute the measured gender wage gap closure to changing selectivity and investment biases, rather than relative increases in women's earning potential. Using PSID waves 1975-93 to control for the changing female workforce with person-fixed effects, we also find little growth in women's mean log wages. Finally, we make a first attempt to gauge the relative importance of selection versus investment biases, by examining the family and cognitive backgrounds of members of the female workforce. PSID, NLS, and NLSY data sets show how the cross-section correlation between female employment and family/cognitive background has changed from "negative" to "positive" over the last thirty years, in amounts that might be large enough to attribute most of women's relative wage growth to changing selectivity bias.
Keywords: wage inequality; gender wage gap; labor supply; selection bias; investment bias
JEL Codes: J24; J31; J16; C34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| selection of women into the labor market has changed sign from negative to positive (J49) | positive selectivity bias has begun to overwhelm investment bias (G41) |
| positive selectivity bias has begun to overwhelm investment bias (G41) | contributes significantly to the observed closure of the gender wage gap (J79) |
| cross-sectional correlation between female employment and family background has shifted from negative to positive (J19) | characteristics of women entering the labor force have changed (J21) |
| characteristics of women entering the labor force have changed (J21) | affecting wage dynamics (J31) |
| growth in wage inequality within gender has had substantial implications for women's relative wage growth (F63) | women's relative wage growth (J39) |