Trends in the Male--Female Wage Gap: The 1980s Compared with the 1970s.

• Author: Polachek, Solomon W.

Solomon W. Polachek [*]

John Robst [+]

Despite a more rapid increase in female work behavior in the 1970s than in the 1980s, the male-female wage gap in the 1970s narrowed one-eighth as quickly as in the 1980s. This paper uses 1972 through 1988 Panel Study of Income Dynamics data to explain why women's wages rose less quickly in the 1970s. It illustrates how new female labor market entrants in the 1970s brought down mean female wages, thereby driving down female wage growth. This decline played itself out in the 1980s as the relative growth in female labor market entrants diminished and as the proportion of women's potential work years actually worked increased.

1. Introduction

   An interesting pattern emerges when contrasting men's and women's wage growth in the 1970s and 1980s. From 1979 to 1989, female wages grew 1.7% per annum faster than male wages. This wage growth in the 1980s resulted in a 17% narrowing of the gender wage gap. On the other hand, from 1969 to 1979 female wages grew at a rate only 0.39% per year faster than male wages, resulting in very little narrowing of the gender wage gap (Blau 1998). As noted by Smith and Ward (1989), these contrasting trends puzzled many because it is well known that female work behavior shot up more dramatically in the 1970s than in the 1980s. If female wage growth is related to increasing labor force activity, one would have expected the male--female wage gap to narrow more in the 1970s than in the 1980s. The purpose of this paper is to identify some of the reasons why the male-female wage gap narrowed more quickly in the 1980s than in the 1970s, despite a deceleration of the growth in female labor force activity in the 1980s.

   What appears to be the case is that predominantly younger and less experienced females entered the labor force in the 1970s. The entry of women with relatively little human capital brought down the growth in women's average human capital (O'Neill 1985), so that despite the upsurge of women's labor force participation in the 1970s, women's average human capital relative to men's increased more slowly in the 1970s than in the 1980s. This relatively slower growth in women's human capital appears to have played itself out in the 1980s both because the number of women joining the labor force slowed and because women's labor force attachment as measured by the proportion of potential work years actually worked increased (Blau 1998). With these trends, average female human capital increased in the 1980s, resulting in greater overall wage gains.

   Because of the stark differences between the 1970s and 1980s, this paper concentrates on distinguishing the factors that contribute to men's and women's wage growth in the two decades. Despite the substantial literature on the male-female wage gap, the interdecade difference in the trend has not been adequately examined. In what follows, this paper uses the Panel Study of Income Dynamics (PSID) to illustrate the effects of the demographic changes alluded to above. [1] First, it presents wage trends for the 1970s and 1980s. Second, it provides direct measures of changes in human capital growth within each decade. Third, to illustrate the importance of these demographic trends, especially how new young labor market entrants bring down wages, it shows that the higher relative female wage growth in the 1980s is reduced and the relatively slower female wage growth in the 1970s is enhanced when one controls for individual human capital characteristics. These effects are illustrated first by including actual experie nce-type variables in a regression whose coefficients measure wage growth, and second by eliminating new entrants from 1970s and 1980s regression analysis. The paper shows that with these controls, increases in female average growth in both the 1970s and 1980s were more comparable than previously thought.

2. Recent Literature on Trends in the Male-Female Wage Gap

   This is not the first paper to recognize the trend in male-female wage convergence. O'Neill(1985), Blau and Beller (1988), Smith and Ward (1989), Goldin (1990), Katz and Murphy (1992), Wellington (1993), O'Neill and Polachek (1993), Blau and Kahn (1997), and Blau (1998) all note that women's wages have risen relative to men.

   Smith and Ward (1989) find that female relative wages rose between 1920 and 1980 when adjusting for worker skills. Goldin (1990), piecing together various data sources, finds a similar long-term narrowing. According to her, "the ratio of female to male earnings in the economy as a whole rose from 0.46 to 0.56 during the period 1890 to 1930, but was virtually stable from 1950 to around 1980" (p. 62). Several studies focus on the 1970s, a period of rapid growth in women's labor market activity. For example, Blau and Beller (1988), using Current Population Survey (CPS) data, find that the ratio of female-male earnings increases from 39.5 to 45.4% for all (full and part-time) workers between 1971 and 1981. These 5.9 percentage points (45.4 minus 39.5) amount to a 14.9% increase in relative female wages. The earnings ratio increases at a slower rate for full-time workers, from 58.1 to 6 1.0%, which is a 5% (or 2.9 percentage point) increase. They attribute the rise in female earnings to "declining gender role spe cialization and declining discrimination." O'Neill (1985), also using CPS data, attributes the modest rise from the mid-1970s until 1982 mostly to increases in female experience.

   Other research covers substantial portions of both the 1970s and 1980s. Wellington (1993), using the PSID, finds that female relative wages increase 4 percentage points (from 61 to 65% of male wages) between 1976 and 1985, with about half the increase explained by changes in average job tenure and work experience. O'Neill and Polachek (1993) use CPS, National Longitudinal Survey, and PSID data to identify the factors related to the decline in pay disparity from 1976 through 1987. The authors find that changes in schooling, the amount of experience, and returns to experience account for a majority of the decline in the wage gap.

   Katz and Murphy (1992) examine a longer time frame, from 1963 through 1987, and also recognize the convergence of male and female wages. They note that in a simple supply-and-demand framework, the increased female labor supply would force women's wages downward. The authors present evidence that demand for female labor rises sufficiently over the 25 years to offset the increased supply. This result is perhaps consistent with O'Neill and Polachek's (1993) finding that women's rate of return to human capital increased.

   Recent studies focus on the 1980s, a period of rapid female relative wage growth. For example, Blau and Kahn (1997) examine how demand-and-supply shifts contribute to the declining male-female wage gap in the 1980s. The authors use PSID data to show that women's relative wages rise 1.1% per year and did so despite relative supply-and-demand changes unfavorable to women. Improving relative qualifications for women and declining unionization among male-dominated blue-collar occupations lead to a narrowing of the gap. Finally, Blau (1998) uses CPS data to examine women's labor force participation rates and the gender wage gap from 1969 through 1994. Similar to prior studies, she finds that female labor force participation increases steadily since 1970. The male-female wage gap among full-time workers shows little convergence during the 1970s. but women's relative wages increase from 0.58 to 0.68 between 1979 and 1989. Women's relative wages continue to grow in the 1990s, but at a slower rate. Her study is uniqu e, as it highlights the interdecade difference in wage convergence.

   Studies that combine both the 1970s and 1980s do not address an important issue: The earnings ratio data discussed in the introduction suggest that the narrowing took place mostly in the 1980s, with very little narrowing in the wage gap occurring during the 1970s. Although Blau (1998) documents the difference in wage gains between the 1970s and 1980s, the reasons for the difference have yet to be rigorously addressed. As discussed above, O'Neill (1985), Smith and Ward (1989), Goldin (1990), and Blau (1998) suggest that women's relative wages would have grown faster in the 1 970s if not for the influx of lesser-skilled women into the labor market. This paper tests this hypothesis using data from the 1970s and 1980s.

3. Data

   The data used to perform this analysis are the 1972-through-1988 waves of the PSID. [2] There are a number of issues regarding the data that are worth mentioning. The sample consists of a panel following individuals over 17 years. The statistical analysis includes respondents between the ages of 25 and 64 in each year they work full-time (at least 1500 hours). This paper confines itself to whites to avoid issues relating to racial discrimination, and 25-64-yearolds to exclude those in school and those moving in and out of retirement. The sample contains 20,531 observations from the 1970s, of which 27% are women. There are 24,452 observations from the 1980s, of which 33% are women.

   Throughout this paper, wages refer to hourly wage rates. This is a self-reported wage when workers are paid hourly, and one computed as annual earnings divided by annual hours worked for salaried workers. A key variable in the analysis is worker experience. Data on actual experience is not collected regularly by the PSID, but all respondents were asked in 1974 the number of years worked full-time since age 18. For continuing respondents, we update the variable in each subsequent year by augmenting experience if the individual worked full-time the previous year. Experience for 1972 and 1973 is computed by subtracting from 1974 experience. Other important variables include categorical variables denoting labor market entrants and leavers, and continuous workers. A labor market entrant is defined as someone who has zero labor...