Chapter 9 The Gender Gap in Earnings: Explanations Part I

1. Chapter 9 The Gender Gap in Earnings: ExplanationsPart I • Human Capital Theory • definition • investment • Differences in Human Capital • education • experience

2. What is human capital? • skills acquired by individuals & used in labor market • acquired through • education • on the job training (OJT)

3. unlike physical capital, • human capital is • mobile • cannot be sold or traded

4. like physical capital • human capital depreciates • skills become “rusty” • skills become obsolete

5. we acquire skills, • and “rent” them to employers • skills imply a certain productivity • and thus a certain wage

6. gender earnings gap • women acquire less human capital than men • women acquire different human capital than men • and it is less valued in markets

7. General OJT • skills that valuable across firms • computer skills • welding • college degree

8. Specific OJT • skills for a particular or firm, • not easily transferred • examples • Oswego Gen Ed • forms or procedures at a company • “institutional knowledge”

9. Human capital investment • education/training is an investment • forgo wages (opportunity cost) • pay tuition, fees (direct cost) • in return for higher future earnings • in return for nonmarket benefits

10. rate of return to college • 9 to 16% • why? • skills are acquired • degree signals that individual is capable of acquiring specific human capital on the job

11. experience • age earnings profile • earnings increase w/ age, indicates value of experience • earning flatten w/ age -- skills depreciate over time -- early years of exp. most important

12. age earnings profile earnings age

13. Investment in Human Capital • costs are incurred up front • tuition, books • lower training wage • benefits are off in the future • higher future earnings • higher life satisfaction

14. $100 received in future • less valuable than $100 today • to compare costs & benefits • must account for time value • present value

15. example • which would you prefer? • $500 today OR $1000 in one year • $500,000 today OR $1 million in 5 years

16. future benefits are discounted to present • using interest rate • farther a benefit is in future, less it is worth today • compare with current costs

17. internal rate of return (IRR) • interest rate where • present value of future benefits = current costs

18. if IRR > than market investment returns • investment is worthwhile

19. example • NYS Lottery • $12 million jackpot • $600,000/year for 20 years • or $6 million today • what is IRR? • 8.9%

20. Gender Differences in Human Capital • why? • what does human capital theory predict? • evidence • data on gender differences in education and experience

21. IRR & education • benefits to education include higher earnings over the work-life • if women have shorter work-life, • then their return is lower than men

22. women take time out of labor force • some benefits lost • benefits are earlier in their work life (child bearing years) • so present value is larger

23. example

24. so if women expect to be out of LF for a long time • investment in education may not be rational • so women have less human capital • note • women’s investment in education may also include quality of husband

25. general OJT • workers accept lower initial wage to train • receive higher wage later • women who expect to leave LF may not find investment worthwhile

26. specific OJT • firm wants worker to stay with firm to recoup the training cost • firms may be reluctant to invest in women, • who are more likely leave

27. discrimination • if there is labor market discrimination, • women do not get the same return to human capital as men • women will investment less in human capital

28. Evidence • look at • education • overall level • types of skills • experience • (substitute for OJT)

29. Differences in education • for younger men, women • levels are very similar • but areas of study still different • for all, 25+ (2002) • 28.5% of men are college graduates • vs. 25.1% of women

30. The Gender Gap in Education • we do see gaps • in skills • in outcomes • some favor girls/women • some favor boys/men

31. why the gaps? • bias against males or females? • abilities are sex-linked (nature)?

32. Sources • How Schools Shortchange Girls • AAUW 1992, 1998 • The Myth That Schools Shortchange Girls • Dr. Judith Kleinfeld 1998 • NCES

33. 1992 AAUW report • girls do worse on standardized exams • gap in girls/women in math & science • girls more likely to experience sexual harassment • girls ignored in classroom • teen girls and self-esteem

34. 1998 follow up • girls closing math & science gap • but there is a technology gap

35. Criticisms of the AAUW report • methodology • girls perform better on many measures: • better grades • more honors, fewer learning disabilities • better graduation rates • over 50% of Bachelor’s degrees • better at reading, writing

36. Look at several issues • grades • standardized tests • classes in math & science • HS dropouts • College Enrollment

37. Girls get higher grades

38. note how changing the scale makes the difference appear smaller

39. but score lower on college entrance exams

41. why? • are tests biased against women? • type of questions • are grades biased against men? • do they pick up different skills? • timed test • willingness to guess • who takes the test? • what do you think?

42. Other testing gaps • proficiency tests given to 9, 13, 17 year-olds • boys do better in math, science • girls do better in reading, writing

46. but math/science enrollment is similar

48. why the proficiency gap? • discrimination? • nurture? • girls/boys are raised to develop different skills • nature? • girls/boys born will different skill advantages

49. other outcomes • HS graduation • attending college • graduating college • graduate degrees