April 27, 2012

How Much of Male/Female Wage Differential is From Differences in Seniority?

Aaron M. Hardin, Advisor: Fahima Aziz

There exists a wage differential between men and women in the US labor market. Women on average earn eighty cents for every dollar men earn. This is true across the majority of occupations in the United States. The wage differential between men and women has been shrinking over the past fifty years, but the rate the gap is shrinking is slowing down. There are many reasons for the difference in the gender wage gap. Discrimination in the labor market has played a role in the wage differentials. Cultural factors may push men and women to learn different skill sets, and the skill sets that men acquire are more likely to earn higher wages. The human capital theory asserts that discontinuous labor supply also contributes to lower wages and less investment in human capital by the employers. Women are more likely to take time off from work to raise children than men, and this may be due to a mixture of cultural and biological factors. Statistics show that women are more likely to have part time jobs than men. Men are more likely to have longer tenure at a single company than women, and companies reward actions that indicate employees will stay with the company for a long period of time by providing additional job training. This paper hypothesizes that one of the critical factors for the wage differential between men and women is the different levels of seniority between the two genders in the market. Thus, it is crucial to understand the root causes for the difference in the speed and method men and women build seniority over time. This paper will also suggest policy recommendations to successfully reduce the wage differential between men and women in the US labor market.