Gender Wage Inequality and Economic Recession

ITUC Report page no 7 March 2011:

“In several developing countries, women are concentrated in export-driven manufacturing sectors, such as garments, cut flowers or electronics, which have all been severely hit by the recession. Export Processing Zones (EPZ) have been the main providers of jobs for poor women in many Asian and African countries. But jobs in EPZ are characterized by their high level of insecurity, low wages, and lack of training opportunities and systematic violation of trade union rights”.

Seguino (2009) “Gendered employment effects in developing countries” In developing countries in which women are concentrated in export manufacturing industries, such as in Latin America and Asia, or in tourism in the Caribbean, the job losses for women will be greater than for men. This is particularly worrisome, given the large percentage of female headed households, almost 40% in the Caribbean, for example. In regions such as Sub-Saharan Africa, women are mainly involved in subsistence agriculture with some off-farm work for wages or work in the informal sector. The effects of this crisis will hit this group differently than in Asia and Latin America. For the bulk of women in Sub-Saharan Africa, the crisis will become apparent with the decline in remittances, and any cuts to public sector spending on education, health, and other services”.

In international trade, developing nations have competitive advantage in low technology, labour intensive goods, which, by and large, belong to the primary commodity group. Developing nations normally import from developed nations such goods which require high skill/technology in production. Therefore, import substitution of such products requires high skilled labour in the developing nation.

Various studies on gender wage has two constituents, viz. (1) differences due to “endowments”/human capital possessed by men and women, i.e wage gap due to productivity differences; and (2) market discrimination, defined as “different payment rules for men and women with the same productivity characteristics”, i.e wage gap arising due to discriminatory and/or irrational considerations. This study attempts to address the gender wage gap due to differences in endowments. Hence, the model assumes absence of market discrimination. In such a scenario, in a perfect labour market (which is driven by rational behavior), wages will be determined solely by productivity. Productivity of low-skilled jobs is more dependent on physical attributes of workers. The inherent biological differences between men and women are likely to make the former more productive in low-skilled primary sector jobs (Sector 1). Hence, based on aforementioned intuitive rationale, wage gap in favor of men has been assumed in the model for Sector 1. Unlike low-skilled jobs, performance and productivity in high-skilled jobs is dependent more on skill—where skill is defined by education and experience. As such, education and experience are gender neutral. Therefore, in a perfect labour market, in which gender discrimination does not exist (as assumed in the model), there can be no economic rationale for gender wage gap. Hence, based on aforementioned intuitive rationale, existence of no wage gap has been assumed in the model for Sector 2.

This simplified assumption has been made in Brecher and Diaz Alejandro (1977), Khan (1982), Grinols (1991), Chandra and Khan (1993), Gupta (1997), Chaudhuri (2001a, b, 2005, 2007) etc. However, in the papers of Beladi and Marjit (1992a, b), Marjit and Beladi (1996) foreign capital has been treated differently from domestic capital and these two types of capital are not engaged in the same sector of the economy.

Wage disparity among genders has been endogenously determined in the paper ‘Economic Reforms and Gender-based Wage Inequality in the Presence of Factor Market Distortions’ by Poddar and Chaudhuri; (2016Journal of Quantitative Economics—First Online 12th February 2016).

Requirements of low-skilled jobs are more dependent on physical attributes of workers. In view of the inherent biological differences, men and women are assumed not to be substitutes for low-skilled jobs (Sector 1). The requirements for high-skilled jobs are more dependent on the quality of education and experience of workers. Education and experience are gender neutral, whereby, for high-skilled jobs (Sector 2) men and women are assumed to be substitutes to each other.

Details of the working is given in Appendix 2.

Working is given in Appendix 2 Eq. (A.2.2).

As the price of high skilled commodity falls the sector producing this commodity will automatically contract.

See Appendix 2 (A.2.5).

Even in a scenario where \(L=F\) and \(\alpha =\beta \), i.e proportions of unskilled male and female labour (Sector 1) and proportion of skilled male and female labour (Sector 2) are equal, wage inequality (average wage gap) prevails in the economy. Therefore, though propositions 2a and 2b depend on these proportions as sufficient condition, they hold true even if \(L=F\) and \(\alpha =\beta \).

Intuitively also when unskilled male wage is greater than female wage and skilled wage is same for both genders, average wage of male will be greater than average female wage.

See Appendix 3.

This paper has been revised in the light of constructive comments of anonymous referees of this journal to whom the author is thankful. The usual disclaimer, however, applies.