The Bound Estimate of the Gender Wage Convergence under Employment Compositional Change

Daiji Kawaguchi and Hisahiro Naito

ESRI Discussion paper series from Economic and Social Research Institute (ESRI)

Abstract: The gender wage gap among full-time workers has narrowed in the last 15 years in Japan. The demographic characteristics of full-time employees also has changed during the same period. The changed composition of workers could result in an observed gender wage convergence without any change in the underlying structure of the equilibrium o.ered wages. This paper develops a new method for estimating the convergence of the gender wage gap when the composition of workers of both genders changes. The newly developed estimators trim the wage distribution of certain groups characterized by observed characteristics so that the composition of workers in terms of these characteristics is stable over time. Applying two extreme trimming rules, based on two extreme distributional assumptions of unobserved characteristics, the trimming estimators identify the upper-and lower-bounds of the true gender wage convergence. The regression-adjusted gender wage gap for full-time workers has narrowed by 6 percentage points, changing from 33 percent in 1987 to 27 percent in 2002. However, the lower-bound estimate indicates an 18-percentage-point divergence and the upper-bound estimate indicates a 33-percentage-point convergence. However, once we assume that spousal income determines reservation wage, but not o.ered wage, we can signi.cantly tighten the bounds. The results highlight that the prediction from economic theory, combined with a reasonable excluded variable assumption, is crucial to making inferences about gender wage convergence in Japan. The method developed in this paper is applicable to other cases for examining the temporal variation of the average wage when the employment composition changes.

Pages: 45 pages
Date: 2006-05
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Citations: View citations in EconPapers (6)

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