What drives the gender pay gap?

mindthegapThe earnings differential between men and women is a recurring topic in academic research and policy debates. While the gender pay gap is sometimes interpreted as a blatant sign of discrimination that calls for stricter equal pay legislation, the story is far more complicated. For example, women may have a preference for certain sectors, firms and jobs that pay lower wages. Women with children are more likely to interrupt their careers or work part-time. A look at several recent IZA discussions papers shows that these alternative explanations are given different weight, depending on the focus of the analysis and the data used.

Evidence pointing at taste-based discrimination

Using a decade of annual wage and productivity data from New Zealand, an IZA paper by Isabelle Sin (Motu Economic and Public Policy Research), Steven Stillman (Free University of Bozen-Bolzano) and Richard Fabling finds that gender differences in sorting between industries and firms, as well as gender productivity differences, explain just a small fraction of the wage gap. They also reject statistical discrimination as a relevant explanation because the wage gap does not decrease over time even as employers should realize that women are no less productive than men.

The authors conclude that taste-based discrimination is the key driver of the earnings differential. According to the study, this notion is supported by the observation that the wage gap increases under favorable market conditions when employers find it easier to discriminate. The paper thus suggests that stronger enforcement of equal pay regulations could be beneficial for many women in New Zealand, but also in other OECD countries with similar labor markets.

Download the paper (IZA DP No. 10975):

Gender pay gap widens with age

Intra-household decisions in favor of the husband’s career explain why the gender wage gap increases over the life course, as demonstrated in a recent IZA paper by Erling Barth (Institute for Social Research), Sari Pekkala Kerr (Wellesley College) and Claudia Olivetti (Boston College). This is particularly true for college-educated workers, whose earnings profiles tend to be steeper. In terms of higher pay, women tend to benefit less from career moves. The authors use U.S. data to analyze the relative importance of shifts in the sorting of men and women across establishments and differential earnings growth within establishments.

They find that the within component is more important for college-educated workers, explaining three-fourths of their wage gap. The across component – the frequency and quality of job-to-job transitions ­– explains the last quarter for those with college education and the entire gap for those without. The gap is almost non-existent for single women. This may be because married women are often “tied movers”, accompanying their husbands who find a better job in a new city.

Download the paper (IZA DP No. 10974):

Part-time jobs are lower-paid and less stable

Another consequence of the traditional household division of labor is that women are much more prone to part-time work, which typically carries a lower accepted wage rate than full-time work. However, the part-time wage penalty can explain less than 10% (only 3.3% for low-educated workers) of the gender pay gap, according to an IZA paper by Kai Liu (Norwegian School of Economics), meanwhile published in Quantitative Economics. Liu points out that men and women also differ in their job turnover dynamics: women are more likely to quit jobs for non-employment, and job changes for women more often involve changes in hours of work.

Effects of counterfactual policies on the gender wage gap

Equal Pay legislation for part-time and full-time work would therefore do little to close the gender pay gap, also due to its behavioral impact on labor supply decisions. Instead, the study finds that Equal Protection policies aimed at equalizing the layoff probabilities for part-time and full-time workers would be more effective in reducing the gender wage gap, especially among low-educated individuals.

Download the complete paper (IZA DP No. 9255):

Willingness to compete affects career choices

So would women earn the same as men if there were no employer discrimination, no household division of labor, and no part-time wage penalty? Probably not, given that gender differences in the willingness to compete still affect career decisions and labor market outcomes, according to an IZA paper by Thomas Buser (University of Amsterdam), Noemi Peter (University of Groningen) and Stefan Wolter (University of Bern).

In an experiment with 1,500 Swiss 8th-graders, the authors find that the gender gap in willingness to compete is essentially zero among the lowest-ability students, but increases steadily with ability and reaches 30–40 percentage points for the highest-ability students. More competitive boys are more likely to choose a math or science-related academic specialization (high-ability boys) or a business-related apprenticeship (medium-ability boys), and are more likely to succeed in securing an apprenticeship position (low-ability boys). These findings relate to persistent gender differences in career outcomes.

Download paper (IZA DP No. 10976):

The above studies underscore that there are many drivers of the gender pay gap. While there is still disagreement about the major source of it, there is a growing consensus that policies to promote greater female lifetime work effort (e.g. better childcare provision or lower marginal tax rates encouraging female labor force participation) are most effective at achieving more equal pay.

For more information on this topic, explore the IZA World of Labor:

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When the unhealthy self kills our New Year’s resolutions

newyeargoals“New Year’s Day: Now is the accepted time to make your regular annual good resolutions. Next week you can begin paving hell with them as usual.” — This quote attributed to Mark Twain describes what many people experience as they pledge to stop smoking, work out more often, or eat healthier. But why is it that so many of our New Year’s goals are short-lived?

According to psychologists and economists, lack of self-control causes people to make decisions they will later regret. Food consumption is a leading example of a setting in which self-control problems may play a role. Experimental evidence and the existence of a multi-billion dollar diet industry attest to this. However, there is limited direct evidence on self-control problems from observational consumption data because individuals’ food preferences are heterogeneous and may change over time or in response to changes in the economic environment.

A new IZA Discussion Paper by Laurens Cherchye (University of Leuven), Bram De Rock (University of Leuven), Rachel Griffth (University of Manchester), Martin O’Connell (Institute for Fiscal Studies), Kate Smith (Institute for Fiscal Studies) and Frederic Vermeulen (University of Leuven & IZA) fills this gap with empirical evidence on the existence, size and variation in self-control problems in food choice.

Google search trends reflect intentions to eat healthier

Internet search behavior can tell us a lot about people’s tendency to make (and fail to keep) New Year’s resolutions that would lead more healthy lifestyles: Time trends in Google searches for “diet” and “healthy food” show spikes in January and a steady decline as the year progresses.

graph - google search terms

Google search trends in the US and UK for “Diet” and “Healthy food”

To find out whether this trend also exists in actual consumption behavior, the researchers exploit longitudinal data on the grocery purchases of a sample of 3,645 single individuals in the UK. The data record all grocery purchases at the transaction level made and brought into the home by these individuals. Using a nutrient profile score, the authors separate the purchased foods and drinks into “healthy” and “unhealthy” baskets.

Healthy January, unhealthy December

The analysis reveals how the share of calories from “healthy foods” varies over time on each day between 2005 and 2012. In line with the Google search pattern, there is a spike in healthiness in January, followed by some decline, plateauing around the middle of the year, then further declining until the end of the year.

graph - share of calories from healthy foods

Share of calories from healthy foods over 2005-2011

From a theoretical perspective, the variation in diet quality within-person over time can be explained using a dual-self model, in which individual food purchase behavior reflects a compromise between a “healthy” and an “unhealthy” self. These two selves constantly bargain over the food budget and whether to buy fruits, vegetables or whole grains, or to buy unhealthy products such as soda, crisps and confectionery. Increases in the influence of the unhealthy self in decision-making thus indicates failure to exert self-control.

Just over half of calories from healthy foods

The empirical analysis also shows considerable variation in diet quality across individuals: 5% of individuals purchase more than 70% of their calories in healthy foods, while at the other extreme 5% buy less than 35% from healthy foods. On average, people purchase just over half (53%) of calories from healthy foods.

This variation is likely due to both preference heterogeneity and differences in the economic environment people face (such as food prices and budgets). It may also reflect persistent differences in individuals’ propensity to yield to temptation. The findings show that individuals with lower income experience greater variation in their spending on healthy foods, even after controlling for responses to price and budget changes. Younger people, on average, have more variation in their shopping baskets than older people.

Systematic changes also around Easter and birthdays

Easter and own birthdays are two other times of the year which are also associated with systematic changes in purchases of healthy foods. In the run up to these dates, the share of healthy foods purchased tends to decline, gradually over several days in the former case and more starkly a few days beforehand in the latter case. In both cases, the share of calories from unhealthy products recovers towards the pre-event level immediately following the occasion.

Share of calories from healthy foods around significant dates

Share of calories from healthy foods around significant dates

Download the complete paper (IZA DP No. 11205):

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State-funded mobility assistance helps the unemployed

MAPsGiven that employment prospects vary substantially across regions in many industrialized countries, it seems economically attractive to geographically relocate unemployed job-seekers from depressed to prosperous regions in order to reduce overall unemployment. Governments thus offer financial support to unemployed job-seekers who search for and/or accept jobs in distant regions. Is this money well spent?

In a new discussion paper, Marco Caliendo (University of Potsdam & IZA), Steffen Künn (Maastricht University & IZA) and Robert Mahlstedt (University of Copenhagen & IZA) investigate the impact of Germany’s mobility assistance programs (MAPs) on the job search behavior of unemployed workers and how this affects their subsequent labor market outcomes.

Mobility assistance programs in Germany

Initially introduced in 1998, MAPs in Germany consist of six separate programs ranging from reimbursement for distant job interviews to relocation assistance. For example, travel cost assistance reimburses expenses for distant job interviews up to an amount of €300. The daily commute to a new job is financially supported with 20 cents per kilometer for the first six months. The relocation assistance program for those who permanently move to a new location provides full coverage of transportation costs up to €4,500.

Using the IZA Evaluation Dataset Survey, which comprises information on more than 17,000 individuals who entered unemployment between June 2007 and May 2008 in Germany, the authors were able to empirically analyze the impact of MAPs on job search behavior and labor market outcomes of these individuals.

Larger search radius

Regional differences in the promotion of MAPs, in combination with the detailed survey data, allow the researchers to analyze how the existence of these programs affect the job search behavior. The results show that reducing the costs of distant job search induces job-seekers to extend their search radius.

The increase in distant job search effort due to MAPs leads to a 16 percentage points higher probability of being regularly employed 12 months after entry into unemployment. Distant job seekers also realize significantly higher hourly earnings in the following job compared to local job seekers (15 percentage points), but they work fewer hours per week, resulting in an overall zero effect on monthly earnings.

Better promotion and more funding needed

It is important to note that the positive employment and earnings effects are generated by those job-seekers who actually become geographically mobile (either by commuting or relocating) and accept jobs in distant regions. Therefore, the study concludes that the German system of MAPs is indeed effective in bringing job seekers back to work by triggering them to increase their search radius, and providing financial support to accept geographically distant jobs. According to the authors, this is a “promising finding” in the light of relatively lost costs per participant.

This means for policy makers that better information about the availability of the programs must be accompanied by an increased budget for MAPs. The authors also suggest that the introduction or expansion of MAPs may be worth considering to stimulate geographically mobility not only within, but also between European countries to reduce disparities in unemployment rates.

Download the complete paper (IZA DP No. 11169):

See also a related previous paper by the same authors (IZA DP No. 9183), which was published in the Journal of Public Economics and covered in the German IZA Newsroom:

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Do boys benefit from male teachers in elementary school?

boyThe scarcity of male teachers in elementary school has led to a debate on whether young boys require more male role models in school, and whether boys might be discriminated against by female teachers. A recent IZA Discussion Paper by Patrick A. Puhani (Leibniz University Hannover) suggests that such fears are unwarranted.

Using administrative data on the population of students and teachers in the German state of Hesse, Puhani estimates teacher gender effects on elementary school outcomes. The evaluation of within-school variation, however, which controls for school fixed effects, identifies virtually no effects of teacher gender at the end of elementary school (grade 4, age 10) on either the teachers’ recommendations for middle school type choice or the actual school type choice in Germany’s early tracking system.

The one exception is that boys might benefit slightly in terms of a higher school type recommendation when taught by a male teacher, although there is no such effect on actual school type choice, probably because parents have the final word on this matter. Nor do the teacher fixed effects models reveal any effects of being taught by a teacher of the same gender on either outcome variable.

Puhani thus concludes that his findings “should allay the concerns expressed in the global press that the increasing feminization of elementary school education might lead to systematic discrimination of boys.”

Download the paper (IZA DP No. 11139):

Read a more detailed summary in German.

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Economic costs of global warming

icebergClimate change is considered one of the major challenges of the 21st century. While politicians and scientists at the COP23 climate change conference in Bonn are currently debating the political implications, economists have looked into the various economic consequences of global warming. Three papers co-authored by IZA’s “Environment and Labor Markets” Program Coordinator Olivier Deschenes investigate the impact of rising temperatures on productivity, birth rates and mortality.

The authors of the most recent paper, Peng Zhang (Hong Kong Polytechnic University), Olivier Deschenes (UC Santa Barbara & IZA), Kyle C. Meng (UC Santa Barbara), and Junjie Zhang (Duke Kunshan University), analyze detailed production data from a half million Chinese manufacturing plants over 1998-2007 to estimate the effects of temperature on firm-level total factor productivity (TFP), factor inputs, and output.

Chinese manufacturing output could fall by 12% per year

The findings show that both labor- and capital-intensive firms are affected by high temperatures. According to the study, one day with temperature above 90 degrees Fahrenheit (32° C) reduces TFP by 0.56% and manufacturing output by 0.45%, or by $8,160 in 2007 dollars, for the average firm. Since the temperature effects on labor and capital inputs are not as pronounced, TFP losses in response to high temperatures appear to be the primary channel through which temperature alters manufacturing output.

Based on historical and projected future climate data, the authors calculate that until the 2040-2059 period, average temperatures in China will increase by 3.6°F (2.0°C). As the map shows, more extremely hot days are to be expected especially in eastern and southern China.

hot-days-china

Change in days per year with temperatures above 90°F between 1998-2007 and 2040-2059 periods

For the Chinese economy, this means that climate change could reduce manufacturing output by as much as 12% annually by mid-21st century or by $39.5 billion in 2007 dollars if no adaptations are undertaken. If China’s manufacturing output share remains fixed at 32% of national GDP, those predicted climate-driven losses in manufacturing alone would reduce Chinese GDP by 3.8% annually by mid-century, according to the study.

Global warming also affects birth rates and mortality

The findings of IZA Discussion Paper No. 9480 show that demography is also affected by global warming. The authors, Alan Barreca (Tulane University & IZA), Olivier Deschenes, and Melanie Guldi (University of Central Florida), conclude that increased temperatures due to climate change may reduce population growth rates over the course of the century. They estimate the effects of temperature shocks on birth rates in the United States between 1931 and 2010 and find that additional days above 80°F (27° C) cause a large decline in birth rates approximately 8 to 10 months later.

For more information on this topic, see the IZA World of Labor article by Alan Barreca: Does hot weather affect human fertility?

IZA-WoL375

A third paper by Alan Barreca, Karen Clay (Carnegie Mellon University), Olivier Deschenes, Michael Greenstone (University of Chicago), and Joseph S. Shapiro (Yale University) evaluates the relationship between rising temperatures and life expectancy. In the economics literature, hot temperatures have been associated with excess mortality due to cardiovascular, respiratory, and cerebrovascular diseases.

The paper shows that the mortality impact of days with a mean temperature above 80° F has declined by about 70% after the 1960s. The results show that the drop in mortality can almost entirely be explained by the adoption of residential air conditioning in the US. In contrast, electrification and access to health care were not significantly related to changes in the temperature-mortality relationship.

The authors conclude that existing technologies (such as residential air-conditioning) offer tremendous opportunities to mitigate the impact of climate change. At the same time, greater use of energy-intensive adaptations may speed up the rate of climate change because electricity production worldwide continues to be primarily driven by the combustion of fossil fuels. “The continued expansion of the renewable energy sector and the development of more efficient adaptation technologies should also be key components of the world’s climate change strategy,” says Olivier Deschenes.

Download the full articles:

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Low-skilled immigration causes human capital polarization in Italy

migrant-workers-1358036_960_720While there is a vast literature considering the labor market effects of immigration, less has been done to investigate how immigration affects the educational choices of young natives, especially in Europe.

A new IZA discussion paper by University of Padova researchers Giorgio Brunello, Elisabetta Lodigiani and Lorenzo Rocco looks at the impact of low-skilled immigration on the educational choices of young natives in Italy during the period 2006–2016. The case of Italy is interesting because the majority of immigrants originate from developing countries and are low-skilled. Also, immigration to Italy is a recent and rapidly growing phenomenon. During the period of interest, the average share of immigrants almost doubled, from 3.7 to 7 percent of the population.

Decreasing marginal benefits for intermediate education

The authors argue that one possible outcome of higher immigration is human capital polarization – or the contemporaneous increase in the share of natives with lower (less than high school and not in education) and higher education (enrolled in college or with a college degree). They document that polarization is not only a theoretical possibility but also an empirical fact. The evidence for Italy – stronger for males than for females – indicates that the recent inflow of low-skilled immigrants has increased the share of both lower educated and higher educated natives.

The study also shows that native males who choose not to invest in further education because of immigration are more likely to work in manual jobs and in the service sector. Native females are instead more likely to be inactive. In line with previous literature, natives who invest more in education because of immigration are less likely to choose STEM fields and more likely to enroll in “communication-intensive” fields.

Reduction of the middle class

The findings indicate that immigration is another source of polarization, as much as globalization and technological progress. The economic literature so far has emphasized the latter but has almost overlooked the former. In the setup of the paper, the polarization of educational choices is privately optimal, but has unpalatable aggregate consequences, because it reduces social cohesion by reducing the size of the middle class. Importantly, the less privileged class is unlikely to consist only of immigrants. By pushing many natives out of school too early, low-skilled immigration is contributing to the expansion of a native underclass.

These results raise questions about what sort of immigration policy a country should select. On the one hand, attracting cheap unskilled labor from abroad can help support an industrial structure that relies more on the price of labor than on technological innovation. On the other hand, by delaying innovation and by reducing the human capital investments of many natives, this policy can have negative consequences on long-term productivity and international competitiveness and contribute to economic decline.

Download the complete paper (IZA DP No. 11062):

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Fertility and the digital divide: More flexibility, more children?

The rapid diffusion of the Internet, and in particular of high-speed, broadband Internet, has characterized the life-changing digital revolution that began around the turn of the twenty-first century. The profound social and economic implications of the spread of the Internet have been highlighted since its inception by social science scholars. More recently, researchers have also started to focus on the effect that the Internet has on family life. Scholars interested in family and fertility have long been focused on the importance of technological change.

Shifts in contraceptive technology, alongside the development of household appliances and medical advances, have been pointed to as some of the preconditions for the massive reproductive changes and the parallel large increases in women’s education and labor force participation that took place in high-income societies during the last period of the twentieth century. The discussion on low fertility, however, has not as of yet focused on the role of broader technological change and how it could shape the future of demographics, with the digital revolution epitomizing such technological change.

DSL technology boosts fertility of highly educated women

In a new IZA discussion paper, Francesco C. Billari (Bocconi University), Osea Giuntella (University of Pittsburgh and IZA) and Luca Stella (Bocconi University and IZA) analyze the impact of the diffusion of high-speed Internet on fertility choices in a low-fertility setting, Germany.

The authors exploit an instrumental variable approach devised by Falck et al. (2014) relying on unique historical and technological peculiarities of the public telephone infrastructure in Germany which affected the diffusion of DSL technology throughout the country. Using data from the German Socio-Economic Panel (2008-2012), they show that DSL access increases fertility of 25-45 year-old women and that these results are largely driven by highly educated women. The rise in fertility mostly reflects an increase in the probability of having more than one child.

Internet access may help bridge competing work-life goals

Moreover, the researchers investigate the potential mechanisms underlying the relationship between Internet and fertility. Their results suggest that broadband may increase fertility by increasing the opportunities of working from home and/or working part-time. These effects may relax time constraints, especially among more educated women, thereby favoring the work-family balance. They conclude that broadband might introduce a “fertility digital divide,” allowing highly educated individuals to realize their fertility goals, while not improving the chances of low-educated individuals, who tend to be employed in less flexible occupations.

Download the paper (IZA DP No. 10935):

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