DP2603 Gender Wage Differentials in a Competitive Labour Market: The Household Interaction Effect

Author(s): Patrick Francois, Jan C. van Ours
Publication Date: November 2000
Keyword(s): Gender Discrimination, Household Models, Wage Gap
JEL(s): J16, J41, J71
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2603

We present a theoretical explanation of the gender wage gap that turns on the interaction between men and women in households. In equilibria where men are over-represented in full-time work, we show that firms rationally choose to hire women only at strictly lower wages to men. The model developed predicts a gap even controlling for education, occupation and industry of workers and does so in a competitive labour market where there exist no inherent gender differences. We test our theory using CPS data over the period 1979–98 and find it is strongly supported by the data.