Increased competition can reduce gender wage gap

doris_weichselbaumer, rudolfwinter-ebmer0, martinazweimüller0, Mon, 07/16/2007

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There has been much debate centred around gender wage differentials and discrimination and one of the key questions to emerge whether competitive markets can bring an end to the unequal market outcomes for men and women or if some form of anti-discrimination law is necessary. There has been extensive research in recent years relating to competition and gender gaps in selected industries, however a more general analysis seems to be still missing. The authors of DP6388 suggest that arguments about the competitiveness of a whole country can be made and after investigating what the effects on gender discrimination are, come to the conclusion that there is a strong negative relationship between competitive markets and gender wage differentials.

The absence of regulation, the freedom to exchange goods and services, just like the protection of private property are some of the main aspects of market orientation. They facilitate entry of firms into the market, increased competition and the dissolution of monopolies leading to less possible discrimination against women, who find it easier to compete with males in the labour market. On the other hand, less regulation and state intervention that go along with higher market orientation diminish the role of legislation in influencing wage setting, which may increase gender wage differentials. If there is no minimum wage that companies must adhere to, the general gender wage gap may increase since women are typically represented at the lower end of the wage distribution.

The authors use the Index of Economic Freedom to measure the market orientation and competitive climate of a country, which comprises factors including: size of government, structure of economy, property rights, price stability etc. They take advantage of the fact that a large number of national studies, which calculate wage gaps, have already been done in the past and collect all possible estimates from 62 countries that cover a time span from 1963 to 1997. They also analyze data examining the effect of competition available for 31 countries during the period of 1985 to 2000.

Overall, the findings suggest that more competitiveness in the economy can reduce gender inequalities in wages but it is not necessarily enough to close the gender wage gap completely.

DP6388 Market Orientation and Gender Wage Gaps: An International Study

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URL:  http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6388.asp

Topics:  Labour markets

Tags:  competition, gender wage gap, market orientation

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