8/12/2011

1

Gender EconomicsDifferences in Occupations and Earnings:

The Human Capital Theory

Séverine Etienne

• The presentation is based on both “The economics of d ” (J b ) d “Th i f

Introduction

gender” (Jacobsen) and “The economics of women, men and work” (Blau, Ferber and Winkler)

1. Effects of gender differences in human capital investments on earnings

2. How much of the gender pay gap can be accounted for by h h i l fthe human capital factors

3. European countries

8/12/2011

2

• Investment decision based upon a comparison of expected costs vs. expected benefits (PV method)

What is Human Capital Theory ?

• Human capital = formal education, on-the-job training, informal learning, and other forms of abilities linked to productive capability and well-being

• Resources invested today increased productivity in the f tfuture

• Economic model used to justify earning differences because earnings provide the measurable return on human capital

• Gender differences in educational attainment

Gender differences in formal schooling

Same share of boys and girls in highschool Larger share of young women than young men in

college completion

• Gender gap depends on culture Asians versus Blacks and Hispanics

• Gender differences in fields of specializationGender differences in fields of specialization Decreasing in highschool Persistent in college

8/12/2011

3

Costs of investment Benefits of investment

The educational investment decision

• Direct costs = tuitionfees and book expenditures

• Indirect costs = opportunity cost of time

• Additional earningsafter attending college

• Non pecuniaryconsiderations Distribution of the

spent in schooling Distribution of the

benefits over the wholeexpect work life

COMPARISON OF PRESENT VALUES

• Comparison between the expected experience-earnings profiles associated with each type of schooling assumption that the future path of earnings is known for every level of education

• The investment in college education is assumed to increase productivity and hence the earnings college graduates’profile rises more steeply than the high school graduates’

• Gross benefits of a college education = the excess of the expected earnings of a college graduate over those of a highschool graduate over the individual’s work life

• Net benefits > 0 if gross benefits > costs

8/12/2011

4

• The investment will be taken under if it provides a positive rate of return, differing among individuals

• Common preference for gains in the present over highergains in the future (uncertainty notion)

• Need for incentives

• Human capital investment if NPV = PV(B) – PV(C) > 0

I t t t “ d f iti ”

Calculation of the net present value

• Interest rate = “reward of waiting”

• Asumption that the future interest rate is know and constant over the indivudual’s lifetimeover the indivudual s lifetime

• The rate of return to education (especially college) has risenover the past 30 years college graduates experienced more favorable trends in real earnings than those with less education

8/12/2011

5

• Human capital theory postulates that earnings rise with additional education because of the productivity-

Human capital analysis

enhancing effects of education

• Screening model of Michael Spence

• Expected work life is shorter for women anticipation of disruptions due to child caringof disruptions due to child caring

Educational investment may be no longer worthwhile…

Impact of expected work life on the educational investment decisionCareer-oriented women follow the same earnings path than men

Benefits are reduced for women planning to interrupt their work life

Skills depreciate during time spent out of the labour force because they are not used

8/12/2011

6

Impact of expected work life on the choice of specialization fields

• Technological change progresses rapidly in sectors of science and engineering

• Women tend to choose occupational sectors where the pace of change is slow and the cost of work disruption is low

Depreciation of skills / Earnings

• Women’s increasing labour force attachment may partially explain their increased representation in traditionally male fields of study

• Gender differences in education attainment and field of specialization are not affected only by the anticipation of work disruptions

I th t t di t t t th t di i i ti• In the not-too-distant past, there was overt discrimination by educational institutions against women in admission to college and professional school

Has still an impact on the current occupational distribution of older women

Contributed to a lack of female role models for the next generations

• However women face nowadays other kinds of• However, women face nowadays other kinds of discrimination, biased evaluation on performance and more subtle barriers to reach the same achievement level than men…

8/12/2011

7

• “Socialization” = process by which the influence of family, friends, teachers and the media shapes an individual’s attitudes and behaviour1 affects boys’ and girls’ perceptions of their

mathematical abilities and the appropriateness ofmathematical abilities and the appropriateness of their interests

2 shapes the role of work that an individual expect to occupy in his/her life

3 Fortunately, there is a growing acceptance of women’s employment outside the home and their participation in traditionally male-dominated sectors

• Stereotypes ‘MALES ARE DOMINANT, COMPETITIVE AND

RATIONAL’ while ‘FEMALES ARE EMOTIONAL, SUBORDINATE AND NURTURING’

“On ne naît pas femme, on le devient”

(Simone de Beauvoir)

• Stereotypes are spread through h l l d hild ’scholar manuals and children’s

toys

• Women avoid male fields because of the non pecuniary cost of acting in an “unfeminine manner” and because they feel unequipped to do so

• Lawrence Summers (2005) Mathematical capabilities Nature / Nurture

8/12/2011

8

• Depending on the social organization of the society, there are also differences in men’s and women’s propensity to negotiate, with women shying away from competition compared to men

• Not only stereotypes adversely impact the performance of woman, but also the outcomes for both women and men who do not conform to these viewsdo not conform to these views

• Biased evaluation: expectation of inferior performance of women lowers the expected return to educational investment

• Past discrimination continues to have an impact on young women today

• Women students may be excluded from informal relationship (mentors) that enhances the chances of career success

• Young women lack access to knowledge about successful strategies for combining work roles and family responsibilities

• Higher returns of the educational investment because of the i i ’ d k lif

Explaining women’s rising educational attainment

increase in women’s expected work life

• Enforcement of Title IX

• Shifting social attitudes towards women’s work roles and decline in occupational segregation by gender

• Availability of contraceptive pill and wider acceptance of abortion Ability to delay childbearing for young women

• Results in more « career-oriented » women

8/12/2011

9

Regional performance on the educational attainment index

Source: Global Gender GapGender Gap Index 2010

On average, 93% of the gap on educational attainment has been closedIceland holds the top spot in educational attainment equality

• Employer discrimination towards on-the-job training and i f l i i

Gender differences in labour marketexperience and on-the-job training

informal instruction

• Narrowing experience gap since 1980 BUT increasing participation of young women in labour force Average level of work experience of women has slightly fallen

• Less continuity in women’s work life

• Importance of « job tenure » for employers

8/12/2011

10

General Training

•Increases the individual’s productivity to the same extent in all

The on-the-job training investment decision

productivity to the same extent in all firms (completely transferable)

•Ex: using computer software or operating office equipment

•Employee bears all the costs and reaps all the returns

•Gross benefits > costs by a sufficient amount to yield the desired rate of return

Firm-specific Training

•Increases the individual’s

The on-the-job training investment decision

•Increases the individual s productivity only at the firm that provides the training

•Ex: learning how to get things done within a particular bureaucracy

•Employer and employee share the p y p ycosts and returns

•Importance of job tenure

8/12/2011

11

Impact of expected work life on the training investment decisionCareer-oriented women follow the same earnings path than men

Benefits are reduced for women planning to interrupt their work life

Skills depreciate during time spent out of the labour force because they are not used

• Occupations vary in terms of both general vs. specific capital mix and expected depreciation rate of capital specific to that

Impact of expected work life on the choice of occupational sectors

p p p poccupation

• Women tend to avoid occupational sectors where firm-specific training is important

Depreciation of skills due to work disruptions / Earnings

• Evidence shows a gender gap in the amount of training but these differences are not fully explained by the human capitalthese differences are not fully explained by the human capital theory and may be also due to discrimination.

• As women’s labour force attachment and career orientation have increased, so has the probability of on-the-job training for them (both general and firm-specific)

8/12/2011

12

• Human capital theory postulates that earnings rise with experience in the labour market because of the productivity-enhancing effects of on-the-job training Critics on this theory not clear that the productivity-enhancing effects

Human capital analysis

cause higher earnings

• Another explanation: the upward-sloping earnings profiles, which reward firm tenure, raise the worker’s productivity because of his motivation to put efforts to remain with the same firm until retirement Focus on the return to tenure Not necessarily in opposition with the human capital theoryy pp p y No direct causality between training and productivity, and between

productivity and earnings

• However, from the perspective of the individual, the investment decision is influenced by the magnitude of costs vs. benefits

1. Societal discrimination can increase costs or decrease returns for women willing to entry into traditionally male fields

Discrimination

1. Labour market discrimination from employers, coworkers and customers reduces access to jobs where training is important or reduces the pay of women who are able to obtain employmentFeeback effects: it indirectly lowers women’s incentives to invest

in themselves by decreasing the reward for doing so

1. Statistical discrimination is due to employer’s differential treatment of men and women based on his perceptions of average gender differences in productivity and job stability

8/12/2011

13

• The human capital theory provides an explanation for gender earnings gap when assuming that women are less likely to make large investments in formal schooling and

h j b i i b h i i h don-the-job training because they anticipate shorter and less continuous careers than men.

• This assumption was valid in the past, but does the theory still hold nowadays ?

• Adherence to traditional gender roles

Limitations of the economic assumptions

roles

• Preferences « voluntary » choices

• Leisure / Work

• Unmeasured factors

8/12/2011

14

What about Europe ?

Regional performance on the Global Gender Gap Index 2010

Source: Global Gender Gap Report 2010Report 2010

8/12/2011

15

• In Europe, the average GPG is 17.5 % and the average labour force participation rate for women is 60 % (52 % in 1998)

Overview

• Considerable differences between countries and sectors

• Nordic countries

• In the second half of 2010: new strategy for gender equality for 2010-2015for 2010-2015

Employment rates (women an men aged 20-64) in EU Member States - 2009

Source: Eurostat, Labour Force Survey (LFS), annual averages

The gender gap in the employment rate was 12 % in the EU (2009)

8/12/2011

16

Pay gap between women and men in unadjusted form in EU Member States – 2009(Difference between men’s and women’s average gross hourly earnings as a percentage of men’s average gross hourly earnings)

Source: Eurostat, Structure of Earnings Survey 2006 and national sources (2007) for yearly SES-comparable estimates

The gender pay gap is 17.5 % in the EU (2011)

25

30

35

30 %

In

5

10

15

20

5%

17.5 %

0

8/12/2011

17

• 25 Mar. 1957: Provisions to promote equal pay for equal work/work of equal value in the Treaty of Rome

Historical background

• 1960s: Strike by the women sewing machinists at the Ford plant in Dagenham / action by Gabrielle Defrenne against the airline Sabena to get equal pay and equal treatment / Strike of female workers at Fabrique Nationale Herstal over issues of pertaining to early retirement, end of career reform and payment bonuses

• 10 Feb. 1975: 1st directive related to gender equality (on equal pay)

• 21 Sept. 2010: Adoption of the Strategy on equality between women and men 2010-1015

1. GPG remains high in Europe 5. High participation of women in th l b k t i i t d

Main statistical findings by the EuropeanCommission

Selection effect

2. Public sector vs. Private sector

3. Hourly earnings vs. Monthlyearnings Part-time work

the labour market is associatedwith high GPG

6. GPG is lowest for youngemployees

5. GPG is generally bigger for highly-educated workers

4. Share of women and men in the total sum of wages

highly educated workers

5. The size of the GPG by economicactivities strongly differs amongMember States

8/12/2011

18

• Tackle the pay gap between women and men

European measures

Tackle the pay gap between women and men Ensuring better application of existing legislation

Fighting the pay gap as an integral part of EU countries’ employment policies

Promoting equal pay among employers, especially through social responsability

Supporting exchange of good practices accross the European Union and involving the social partners

• Impose penalties on companies guilty of gender-based pay discrimination

• Make pay in companies more transparent

• Intensify efforts to combat prejudice and generally negative accepted ideas concerning women

• Facilitate access for women to positions of responsibility

• Improve access for men and women to sectors and jobs in which they are generally under representedwhich they are generally under-represented

• Enhance the standing of the sectors and jobs in which a majority of women are employed

8/12/2011

19

• Systematic gender differences

- in the amount of formal schooling, on-the-job training

Main points to engrave

and work experience

- in the mix of general vs. specific capital

• How much of the gender pay gap can be accounted by theses differences ?

• Europe is still far from closing the gender pay gap, but narrows it step by step.

1964 2011

8/12/2011

20

Thank you for your attention !

Do you have any questions ? Extra sources: Eurydice, Gender differences in educational outcomes: Study on the measures taken and the current situation in Europe (2010)

h l b l d hidiThe Global Gender Gap Report 2010, Hausmann R., Tyson L. D., Zahidi S.The gender pay gap in the Member States of the European Union: quantitative and qualitative indicators, Belgian Presidency report 2010OECD report – Employment, labour and social affairs (2010)European Commission: Strategy for equality between women and men 2010-2015