A recent study has revealed that the gender pay gap in high-income countries such as the United Kingdom, United States, Canada, and Italy is unlikely to disappear in the foreseeable future.
Contrary to optimistic trend-based forecasts suggesting that the incomes of men and women are converging, the study indicates a persistent disparity in pay.
The research, conducted by economists Jaime Arellano-Bover, Nicola Bianchi, Matteo Paradisi, and Salvatore Lattanzio and published by the Centre for Economic Policy Research, found that the narrowing of the gender pay gap between the mid-1970s and early 2000s was primarily driven by decreasing earnings differentials among new labour market entrants.
However, this trend halted at the start of the 2000s. Since then, the reduction in the pay gap has mainly been due to the retirement of older cohorts with wider pay discrepancies.
What contributes to the gender pay gap?
The economists observed that the convergence in pay outcomes for men and women seen until the mid-1990s did not result from improved opportunities for young women. Instead, it was attributed to a decline in the fortunes of young men, who experienced notable “positional losses,” especially at higher-paying firms. For instance, the average wage for 25-year-old men in the U.S. fell from the 50th percentile in 1976 to the 39th percentile in 1995. Women of the same age group remained around the 30th percentile.
A significant factor contributing to the persistent earnings gap is the choice of college majors, which continues to influence career trajectories and pay outcomes. The study highlights that 63 percent of the gender pay gap among U.S. college graduates entering the workforce can be traced to their choice of major. This disparity does not diminish over the life cycle of any given age cohort, posing a bleak outlook for future pay equality.
The study concludes that, without significant structural changes in the labor market, the gender pay gap will likely remain at levels observed among recent labor market entrants. This differential remains economically significant, suggesting that the gender pay gap will not disappear in the high-income countries studied.
The research team includes Yale University’s Jaime Arellano-Bover, Northwestern University’s Nicola Bianchi, and Einaudi’s Matteo Paradisi, with Salvatore Lattanzio representing the Bank of Italy.
