Estimating Gender Wage Gap in the Presence of Efficiency Wages -- Evidence From European Data
AbstractGender wage gap (adjusted for individual characteristics) as a phenomenon means that women are paid unjustifiably less than men, i.e. below their productivity. Meanwhile, efficiency wages as a phenomenon mean that a group of workers is paid in excess of productivity. However, productivity is typically unobservable, hence it is proxied by some observable characteristics. If efficiency wages are effective only in selected occupations and/or industries, and these happen to be dominated by men, measures of adjusted gender wage gaps will confound (possibly) below productivity compensating of women with above productivity efficiency wage prevalence.
We propose an estimator of gender wage gap, which accounts for bias stemming from a separation between a privileged and standard labor markets, when this separation is endogenous and a priori unknown (unobservable). We analyze estimates of the gender wage gaps in European countries using linked employer-employee data for the European countries (EU SES). Thus, we address an important concern implicit in the previous literature that the estimates of adjusted gender wage gap are inflated by the incidence of efficiency wages.
We find that without correction for the prevalence of efficiency wages, the estimates of the adjusted gender wage gaps tend to be substantially inflated in the majority market, and underestimated for the primary market. Access to primary market proves to be strongly gendered.