The Closing Gender Gap as a Roy Model Illusion (with Yona Rubinstein)

Abstract

Under the assumption that earning power (sufficiently) increases female labor supply, we show how rising wage inequality within-gender since 1975 has created the illusion of rising wage equality between genders. It is well known that an upward sloping labor supply curve leads the wages of working women to overstate the wages of all women, because the low wage women are selected out of the market. Less appreciated is the fact that the selection bias may get worse as inequality grows, which is exactly what happened since 1975. Control function methods have important advantage in this case, and we use them to show how the earning power of the median woman has not caught up to the earning power of a median man, even while the earning power of the median working woman has.

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