The Gender Earnings Gap: Learning from International Comparisons

Author(s): Francine D. Blau and Lawrence M. Kahn

Source: The American Economic Review , May, 1992, Vol. 82, No. 2, Papers and
Proceedings of the Hundred and Fourth Annual Meeting of the American Economic
Association (May, 1992), pp. 533-538
Published by: American Economic Association

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 The Gender Earnings Gap:
Learning from International Comparisons

By FRANCINE D. BLAU AND LAWRENCE M. KAHN*

Despite some dramatic reductions in the
male-female pay gap since the 1950's, gen-
der differentials persist in all industrialized
nations. However, the size of these differ-
entials varies considerably. This paper uses
micro data to analyze international differ-
ences in the gender pay gap among a sam-
ple of eight industrialized nations (see Table
1 for included countries). A major theme in
our analysis is that intercountry differences
in the gender gap are affected by two pro-
cesses. First are gender-specific factors in-
cluding differences in the qualifications of
men and women and differences in the
treatment of equally qualified women (i.e.,
labor-market discrimination). Second is
wage inequality, the prices the labor market
of each country places on various labor-
market skills, both observed and unob-
served. For example, suppose that in two
countries women have lower levels of skills
than men but that the differences in skills
(somehow measured) is the same in the two
countries. If the return to skill is higher in
one country, then that nation will have a
larger gender pay gap.
Skill prices can be affected by relative
supplies, by technology (e.g., high-tech in-
dustries place a premium on highly trained
workers) or by the wage-setting institutions
of each country. Specifically, centralized
wage-setting institutions which tend to re-
duce interfirm and interindustry wage varia-
tion and are often associated with conscious
* Blau: Institute of Labor and Industrial Relations,
University of Illinois, Champaign, IL 61820, and NBER; average for our sample of eight countries.
Kahn: Institute of Labor and Industrial Relations, Uni- An important part of the explanation of this
versity of Illinois. We thank participants at the NBER
Conference on "Differences and Changes in Wage
Structures" for helpful comments. We are grateful to
David Blanchflower for making the International So-
cial Survey Programme (ISSP) data available to us.
This research was supported by a grant from the Ford
Foundation to the NBER.
policies to raise the relative pay of low-wage
workers (regardless of gender) may indi-
rectly reduce the gender pay gap. U.S. pay-
setting is far less centralized than that in
the other countries in this study, with the
possible exception of Switzerland, a factor
contributing to gender pay differences in
the United States.1
We adapt a framework used by Chinhui
Juhn et al. (1989) in their analysis of
black-white wage trends in the United
States to estimate the contribution of gen-
der-specific factors versus wage structure in
explaining international differences in the
gender gap. The striking finding of our study
is that the higher level of wage inequality in
the United States works to increase the
gender differential in the United States rel-
ative to all the other countries in our sam-
ple and fully accounts for the lower gender
earnings ratio in the United States com-
pared to the Scandinavian countries and
Australia (the countries with the smallest
gaps).
This approach helps us understand the
seemingly paradoxical position of U.S.
women compared to women elsewhere. U.S.
women compare favorably with women in
other countries on several measures of skills
relative to men. Moreover, the United States
has had a longer commitment to policies of
equal pay and equal employment opportu-
nity for women than have the other coun-
tries in our sample. Yet the United States
does not rank among the countries with the
smallest pay gaps; indeed the gender pay
differential in the United States is above
'See our longer paper (Blau and Kahn, 1991) for a
description of differences across these countries in
wage-setting institutions, gender-specific policies, and
gender differences in qualifications.

533

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 534 ALA PAPERS AND
pattern is that the U.S. labor market places
a much larger penalty on those with lower
levels of labor-market skills (both measured
and unmeasured).
I. Earnings Ratios in the Micro Data
The following countries and time periods
were used in this study: Austria [1985-1987],
West Germany [1985-1988], the United
Kingdom [1985-1988], the United States
[1985-1988], and Switzerland [1987] (Inter-
national Social Survey Programme [ISSP]
data); Sweden [1980] and Norway [1982]
(Class Structure and Class Consciousness
[CSCC] data); and Australia [1986] (Income
Distribution Survey [IDS] data).2 The sam-
ple was restricted to workers aged 18-65.
To maximize sample size, we pooled years
of data for those countries in the ISSP
surveyed more than once.
Table 1 gives estimated female/male
earnings ratios by marital status for log
earnings corrected for hours. To obtain
these estimates, the following regression was
run separately by sex for each country:3
(1) ln(EARN)
= bo + bjPART+ b2HRPART
+ b3HRFULL+ b4MARSP
+ b5OTHERS + e
where ln(EARN) is the natural log of earn-
ings; PART is a dummy variable for part-
time employment; HRPART and HRFULL
are interactions of weekly work hours with
part- and full-time status; MARSP is a
dummy variable for married, spouse pres-
2The ISSP data are described in David Blanch-
flower and Richard Freeman (1992). See Rachel
Rosenfeld and Arne Kalleberg (1990) for a description
of the CSCC data, originally compiled by Erik Wright;
and see McKinley Blackburn and David Bloom (1991)
for a description of the IDS data.
3For countries with more than one year of data, the
log-earnings variable was obtained by transforming each
observation into its 1988 (or end year) equivalent on
the basis of regressions including only gender and year
dummy variables.
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PROCEEDINGS MAY 1992
TABLE 1-FEMALE/MALE EARNINGS RATIOS
CORRECTED FOR HOURS
Country
(earnings All Married Single
measure) workers workers workers
Germany 0.6880 0.5730 1.0270
(monthly)
United Kingdom 0.6337 0.5966 0.9489
(annual)
United States 0.6849 0.5944 0.9552
(annual)
Austria 0.7256 0.6558 0.9703
(monthly)
Switzerland 0.6174 0.5768 0.9449
(monthly)
Sweden 0.7673 0.7242 0.9350
(annual)
Norway 0.7308 0.7160 0.9158
(annual)
Australia 0.7489 0.6909 0.9144
(annual)
Notes: The earnings ratios were evaluated at 40 hours.
The earnings ratios for married workers are for mar-
ried workers with one person other than the spouse in
the household (for Sweden, Norway, and Australia,
one child); those for single workers are for nonmarried
people with no other persons in the household.
ent; OTHERS is number of people other
than the spouse in the household (ISSP
countries), or number of children in the
household (Scandinavia and Australia); and
e is an error term. The coefficients from (1)
were used to compute a gender ratio for
each country, assuming a 40-hour work
week.
The first column in Table 1 indicates the
hours-corrected gender earnings ratio for
all workers. These estimates are obtained
by evaluating the family-composition vari-
ables at their mean values for each sex in
each country. The ratio is highest in the
Scandinavian countries, Australia, and Aus-
tria, ranging from 73 to 78 percent, and
lowest for Switzerland and the United King-
dom, ranging from 62 to 63 percent.4 The
4While our estimates for Australia and the Scandi-
navian countries are below those in published sources
(ILO, various issues), they are consistent with other
estimates from micro data (Blau and Kahn, 1991).
Published ratios for these countries are most likely
VOL. 82 NO. 2 GENDER AND LABOR-MARKET OUTCOMES 535

United States and Germany comprise an
intermediate category.
In the next two columns, we use equation
(1) to estimate the earnings ratio separately
for married workers with one nonspouse
"other" (or child) in the household5 and for
single (i.e., nonmarried) people with no oth-
ers (children) in the household. The pay
ratio is uniformly very high among single
workers, ranging from 0.91 to 1.03. In con-
trast, the pay gap is much larger for married
workers, with the rankings for this group
fairly similar to the overall rankings. (The
most notable differences are that Austria
falls into the intermediate group and Ger-
many falls into the lowest group.) These
findings suggest that intercountry differ-
ences in the earnings ratios of married
workers drive the international pattern of
gender pay gaps and that in order to explain
this pattern, we need to concentrate on
married workers.6
II. Analysis of the Intercountry Gender Gap
Juhn et al. (1989) have devised a method
that allows us to decompose the cross-coun-
try differences in the gender gap into a
portion due to gender-specific factors and a
portion due to differences in the overall
level of wage inequality. Following their no-
tation, suppose that we have for male worker
i and country j a male wage equation:
(2) Yij = XijBj + o-jOij
overstated in that the Scandinavian data are limited to countries for observed labor-market quali-
manufacturing workers, and the Australian data ex-
clude supervisory personnel.
5The average number of nonspouse others in the
household is roughly 1.
6The very small gaps for single workers may be due women (i.e., whether women rank higher or
in part to their being disproportionately young (the pay lower within the male residual wage distri-
gap -is lower for young workers); in addition, single
males are less productive than married males (see
Sanders Korenman and David Neumark, 1991),
whereas the opposite is likely to be the case for women. characteristics or the impact of labor-market
In our longer paper (Blau and Kahn, 1991), we show
that differences in the composition of the labor force
with respect to marital status do not explain differences
in the pay gap across countries, again suggesting that
we must concentrate on differences among married
workers.
where Yij is the log of wages; Xi is a vector
of explanatory variables; Bi is a vector of
coefficients; Oij is a standardized residual
(i.e., with mean zero and variance 1 for each
country); and oj is the country's residual
standard deviation of wages (i.e., its unex-
plained level of male wage inequality).
Then, the male-female wage gap for
country j is
(3) Dj-Ymj -Yfj = 8 Xj Bj + 0 y01
where the m and f subscripts refer to male
and female averages, respectively; and a 8
prefix signifies the average male-female
difference for the variable immediately fol-
lowing. Equation (3) states that the country's
pay gap can be decomposed into differences
in measured qualifications (5X1), and dif-
ferences in the standardized residual (60j)
multiplied by the log money value per unit
difference in the standardized residual (o).
The pay-gap difference between two
countries j and k can then be decomposed
as follows:
(4) Dj - Dk
- (Xj - Xk)Bk + 5Xj(Bj -Bk)
+ (89 - 50k )o'k + 50j(o,i - Ck )
The first term in (4) reflects the contribu-
tion of intercountry differences in observed
labor-market qualifications (X) to the gen-
der gap. The second term reflects the im-
pact of different measured prices across
fications. The third term measures the ef-
fect of cross-country differences in the rela-
tive residual wage positions of men and
bution). Such differences in rankings may
reflect gender differences in unmeasured
discrimination against women. We label this
term the "gap" effect. Finally, the fourth
term of (4) reflects intercountry differences
in residual inequality. Suppose that unmea-
sured deficits in female relative skills or

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 536 ALA PAPERS AND PROCEEDINGS MA4Y 1992

discrimination lower women's position in (4). With labor-market discrimination, the

the male distribution of wage residuals as is
last term in part reflects the interaction
likely. The larger the penalty a country between country j's level of discrimination
places on being below average in wages, the (pushing women down the distribution of
larger will be its pay gap. In the empiricalwages) and intercountry differences in the
work below, we label this the effect of "un-overall level of inequality which determine
observed prices." how large the penalty is for that lower posi-
Following Juhn et al. (1989), the third tion in the distribution (Juhn et al., 1989).
term, (80Q - 0k)dok, can be obtained empir-The observed price effect may also reflect
ically by assigning each woman a percentile discrimination if, for example, women
number corresponding to her position in "crowd" into certain sectors lowering rela-
her country's distribution of male wage tive earnings there even for men (Barbara
residuals. We can then find what the coun- Bergmann, 1974).
try-j mean female wage residual would have In light of the evidence presented above
been given the percentile rankings in coun- that intercountry differences in the pay gap
try j and the distribution of male wage are driven by differentials for married work-
residuals in country k (note that the mean ers, we implement this decomposition using
male residual is always zero). The difference as the dependent variable YMCH, hours-
between this imputed wage residual for corrected earnings simulated for married
country j and the actual female mean wage people with one nonspouse other (or child)
residual for country k is used to find the in the household using equation (1).7 An
estimate of (80 - 0k)o-k. That is, we find alternative to using wages for married work-
the contribution to the cross-country dif- ers (with one other or child) as the depen-
ference in the gender gap that would result dent variable in equation (2) would be to
if two countries had the same levels of control for marital status and number of
residual male wage inequality and differed children (others) on the right-hand side.
only in their percentile rankings of the fe- However, such an approach is problematic
male wage residuals. The fourth term of (4), in that these variables may measure higher
0j(oj - ok), may be obtained analogously skills for men and lower skills for women.
and measures the contribution to the cross- The decomposition of YMCH is shown in
country difference in the gender gap that Table 2. The underlying regressions include
would result if two countries had the same the traditional human capital variables
percentile rankings of the female wage (education, potential experience, and its
residuals and differed only in the extent of square) and a vector of dummy variables for
male residual wage inequality. union status, one-digit industry, and one-
According to (4), the full impact of gen- digit occupation.8 The structural variables
der-specific factors is reflected in the first may reflect both worker skills and rents
and third terms, the effect of gender differ- received by workers with these characteris-
ences in qualifications and of gender dif- tics. Unfortunately, the data sets available
ferences in wage rankings at a given level of
measured characteristics. Labor-market
7For each worker i, we have
structure is reflected in the second and
fourth terms, the impact of intercountry
YMCHi = ln(EARN)i - bjPART1 - b2HRPART1
differences in returns to measured and un-
measured characteristics. In a traditional
-b3(HRFULLi -40)- b4(MARSPi -1)
decomposition, the sum of the third and
fourth terms represents the impact of inter- - b5 (OTHERSi - 1) .
country differences in the "unexplained"
differential, which is commonly taken as an 8For Australia, union status is unavailable, and the
estimate of discrimination. occupation and industry codes differ from those in the
ISSP or CSCC data. For U.S-Australia comparisons,
The possibility of discrimination compli- we estimated a U.S. equation that had the same vari-
cates the interpretation of the last term of ables as Australia's.

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 VOL. 82 NO. 2 GENDER AND LABOR-MARKET OUTCOMES 537
TABLE 2-ANALYSIS OF LOG WAGES (YMCH)
Mean
percentile
of female
residuals
Gender in male
Country differential distribution Di-DUSA
Germany 0.5569 15.78 0.0367
United Kingdom 0.5165 20.98 -0.0037
United States 0.5202 30.44 -
Austria 0.4220 21.61 -0.0982
Switzerland 0.5502 25.37 0.0300
Sweden 0.3227 30.91 - 0.1975
Norway 0.3341 27.88 -0.1861
Australia 0.3698 31.45 -0.1504
Decomposition of D,-DUSA
Observed Observed Unobserved
Country X's prices Gap prices
Germany 0.0240 -0.1038 0.5739 -0.4574
United Kingdom 0.0170 -0.0302 0.3465 - 0.3370
Austria 0.0633 -0.1475 0.3412 -0.3552
Switzerland 0.0889 - 0.0397 0.2384 -0.2576
Sweden -0.0218 -0.0394 0.0145 -0.1508
Norway 0.0229 -0.0948 0.1865 -0.3007
Australia 0.0399 -0.0561 - 0.0389 - 0.0953
Notes: Log earnings were estimated at 40 hours per week for
married individuals with one nonspouse other (or child). The re-
gression includes controls for education, potential experience and
its square, union status, and occupation and industry dummy vari-
ables.
to us lack information on actual labor-
market experience or weeks worked, which
remain important omitted variables in these
analyses.9
The column headed Di - DUSA shows the
difference between each country's gender
differential and that of the United States.
The U.S. gender gap is higher than in the
Scandinavian countries, Australia, and Aus-
tria, about the same as in the United King-
dom, and lower than in Germany and
Switzerland. The mean percentile of the
female residual in the male distribution
ranges from 16 percent in Germany to 30-31
percent in Australia, Sweden, and the
United States. It is noteworthy that U.S.
women place near the top of the list.
The column headed "Gap" shows the
contribution of each country's female place-
ment in the male residual wage distribution
to its relative pay gap. The figure is positive
for all countries except Australia, indicating
9To some degree, our controls for education, hours,
industry, and occupation may pick up the effects of
such omissions.
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that these differences in rankings raise the
differential relative to the United States,
often substantially (the unweighted average
effect is 0.2374). 10 The column headed
"Unobserved prices" shows that the lower
level of residual wage inequality in each of
the other countries has a negative effect,
often quite considerable, on its gap relative
to that in the United States (the unweighted
average effect is - 0.2791).
Table 2 also provides estimates of the
impact of measured skills and their prices
on intercountry differences in the pay gap.
The "observed X's" effect is positive with
the exception of Sweden, indicating that
U.S. women have relatively favorable levels
of the measured characteristics (the un-
weighted average effect is 0.0335). The "ob-
served prices" effect is negative in every
case, indicating that the male returns to
measured characteristics decrease the pay
gap in other countries relative to the United
States (the unweighted average effect is
- 0.0731).
The results in Table 2 suggest that U.S.
women fare well with respect to gender-
specific factors (as measured by the contri-
bution of the observed X's and of gap) but
are adversely affected by the high level of
wage inequality in the United States (as
measured by the contribution of observed
and unobserved prices)." Indeed, the higher
level of wage inequality in the United States
fully accounts for the lower gender ratio in
the United States in comparison to the
Scandinavian countries and Australia. How-
ever, as noted earlier, what we have labeled
wage inequality could also reflect the im-
pact of the interaction of differences in wage
structure and the country-i (non-U.S.) level
of discrimination.
t0Note that although the percentile ranking of
women in Sweden is slightly higher than in the United
States, the gap effect is small and positive. This is
because the gap effect takes into account not simply
the rankings, but also the associated wage rewards
(penalties).
1"Further indication of U.S. women's high relative
labor-market qualifications compared to women in
other countries is the far greater incidence of full-time
work among U.S. employed women (relative to men)
than for those elsewhere (Blau and Kahn, 1991).
538 ALA PAPERS AND PROCEEDINGS MA Y 1992

What are we then to conclude about the
role of labor-market structure? From a
number of indirect indicators we conclude
that it is important, even though it may not
be possible to estimate its effect precisely.
First, U.S. wage-setting institutions are con-
siderably less centralized than in other
countries, thus making a finding of the im-
portance of wage structure plausible. Sec-
ond, the U.S. commitment to policies of
equal pay and equal employment opportu-
nity compares positively to the other coun-
tries in our sample, although such policies
may well be more effectively implemented
under more centralized wage-determination
systems.12 Further, U.S. women compare
favorably to women in the other countries
in terms of their qualifications relative to
men. Thus, it is credible that gender-specific
factors do not explain the relatively high
pay gap in the United States. Third, we
found that the wage and residual wage vari-
ation of both men and women in the United
States considerably exceed those of the same
gender group in other countries (results not
shown), suggesting that the same set of fac-
tors (measured and unmeasured prices and
wage-setting institutions) affect the wages of Blau, Francine D. and Kahn, Lawrence M., "The
both men and women in each country in a
similar way. Finally, and perhaps most im-
portantly, even though the estimated wage
inequality effect may include the impact of
gender discrimination as it interacts with
wage structure, our findings nonetheless
suggest an extremely important role for wage
inequality in affecting the gender ratio.
III. Conclusion
The major finding of this paper is the
importance of wage structure, specifically
the higher level of wage inequality in the
United States relative to other industrial-
ized countries, in explaining international
differences in the gender pay gap. Much
attention has focused on women's growing
relative levels of skills and labor-force com-
mitment as causes of changes in the pay gap
in the United States. Our research suggests
12In addition, the comparable-worth approach pur-
sued in Australia might be expected to produce a
larger immediate impact on wages.
that to understand changes in the gender
pay gap fully, it would also be fruitful to
examine the impact of changes in wage
structure. Given growing wage inequality in
the United States in the 1970's and 1980's
(Juhn et al., 1990), American women may
have been swimming upstream in a labor
market increasingly unfavorable to low-wage
workers.
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