The Role of the Gender Wage Gap in Overall Wage Inequality: A quantitative exercise

Journal Economía-LACEA, Volume 21, Number 1, Fall 2020, pp. 169-207. (PUBLICATION) (WORKING PAPER)

This article presents a novel wage inequality decomposition to analyze the gender wage gap's impact on overall wage inequality. The decomposition determines the maximum relative wage between genders allowed before it begins to increase total inequality. In addition, I present a structural model of the labor market to evaluate the impact of establishing restrictions on intra-occupational gender pay gaps within each firm; specifically, a restriction in which the average wage of one gender cannot exceed $\alpha$ times the average wage of the other gender. For an $\alpha =2$, the model predicts a 10$\%$ wage inequality reduction. However, with a tighter restriction of $\alpha =1$, the inequality reduction dissipates and reverses into a wage inequality increment.