Location: 360 Heady Hall

Description: Anni Isojaervi, Ph.D. candidate, Iowa State University
"Accounting for the Sources of Gender Wage Gap: A Search and Matching Approach"

Abstract: This paper decomposes the sources of the life-cycle gender wage gap according to a calibrated version of the Mortensen and Pissarides (1994) search and matching model augmented to include life-cycle features and endogenous accumulation of human capital due to experience and aging. In the model, workers can be employed, unemployed, nonparticipating, or on a parental leave. Female and male workers differ with their productivity, bargaining power, and transition probabilities between labor market states. As human capital of a worker increases along with wages whenever a worker is employed, career breaks are costly in terms of lost human capital and wages. I calibrate the model using U.S. labor market data to study the quantitative effects of these gender differences on the life-cycle wage gap. The joint determination of employment, unemployment, and wages in the general equilibrium imposes structure on identification of the model parameters. I find that the model can create the two stylized facts observed in the data - the gender wage gap starts narrow and increases over the life cycle. Majority of the gap, 36 percent, and majority of the growth in the wage gap over lifetime can be explained by the differences in labor market attachment between gender measured by the transition probabilities, supporting empirical evidence that career breaks are costly in terms of the lost wages. Females' lower bargaining power explains 25 percent of the gap, while exogenous gender differences in productivity are important in generating the wage gap in the outset of careers and can explain 32 percent of the total gap.

Contact Person: John Winters