Working Paper: NBER ID: w18159
Authors: Paul Beaudry; Ethan Lewis
Abstract: Over the 1980s and 1990s the wage differentials between men and women (with similar observable characteristics) declined significantly. At the same time, the returns to education increased. It has been suggested that these two trends may reflect a common change in the relative price of a skill which is more abundant in both women and more educated workers. In this paper we explore the relevance of this hypothesis by examining the cross-city co-movement in both male-female wage differentials and returns to education over the 1980-2000 period. In parallel to the aggregate pattern, we find that male-female wage differentials at the city levels moved in opposite direction to the changes in the return to education. We also find this relationship to be particularly strong when we isolate data variation which most likely reflects the effect of technological change on relative prices. We take considerable care of controlling for potential selection issues which could bias our interpretation. Overall, our cross-city estimates suggest that most of the aggregate reduction in the male-female wage differential observed over the 1980-2000 period was likely due to a change in the relative price of skill that both females and educated workers have in greater abundance.
Keywords: gender wage gap; returns to education; technological change; skill prices
JEL Codes: J16; J24; J31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observed patterns in wage differentials and returns to education (I26) | predictions of theoretical framework (C53) |
| returns to education (I26) | male-female wage differentials (J31) |
| change in the relative price of skills (J24) | aggregate reduction in the male-female wage differential (J79) |
| technological change (O33) | wage differentials (J31) |
| technological advancements (O33) | changes in the relative prices of skills (J24) |
| common latent factor (C38) | changes in the gender wage gap (J79) |