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GTAP Resource #6970

"Modeling gender-based wage discrimination"
by Lofgren, Hans and Martin Cicowiez

A growing number of CGE models disaggregate labor by gender with wage differences between men and women that otherwise belong to the same labor categories. The models assume that the wage differences are matched by marginal productivity gaps, i.e., that they are not due to discrimination but caused by lower marginal productivities that, in the market place, result in lower wages.

The purpose of this paper is to address this shortcoming by developing and testing a model of a profit-maximizing firm with wage discrimination that is embedded in a CGE model. The approach is inspired by the work of Gary Becker. It improves on the current formulations by introducing a distinction between wage differences that are due to discrimination and those due to productivity differences. Discrimination (positive or negative) is manifested in that employers do not offer a category of workers their marginal value product (MVP). Gaps between the MVP and the wage could also result from taxes or subsidies on wages; the difference is that payments due to taxes and subsidies are linked to the government budget, not recycled inside the firm, which is done in the model of this paper. While this paper is focused on gender, the approach is equally applicable to other forms of discrimination (for example related to race or religion). While the analysis tries to help better understand the economic effects of discrimination, it does not explain the underlying reasons for discrimination.

In this paper, we first present and test a partial equilibrium model of a profit-maximizing firm with discrimination using the proposed approach. Subsequently, we embed the discriminating firm model in simple static CGE model linked to a Mexican database with labor disaggregated by gender and empirical data on wage discrimination. The simulations test the impact of reduced gender-based wage discrimination on wages, employment and other economic indicators.

Resource Details (Export Citation) GTAP Keywords
Category: 2023 Conference Paper
Status: Not published
By/In: Presented during the 26th Annual Conference on Global Economic Analysis (Bordeaux, France)
Date: 2023
Version: 1
Created: Lofgren, H. (4/15/2023)
Updated: Lofgren, H. (4/15/2023)
Visits: 373
- Calibration and parameter estimation
- Model extension/development
- Labor market issues

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