The Australian gender wage gap
Creators: name: Stephan, Mary
Publisher: name: The Australian National University
Year: 2017
Subjects: gender wage gap
fixed effects
Australian public and private sectors
wage distributions
decompositions

description: In the Australian labour market, men earn higher wages than women and this difference is persistent. The purpose of this thesis is to examine the gender wage gap and its determinants over time, to measure the gap using different methods compared to prior Australian research, and to measure the gap by sector of employment. The gender wage gap is estimated using the real hourly wages (in 2012 dollars) of men and women in the Australian labour market. The thesis begins with a review of Australian and international studies that have measured the gender wage gap and of possible explanations for its existence. The literature review provides a survey of the empirical methods that have been used to measure the gender wage gap and of empirical issues that arise when measuring the gap. Further, the literature review provides a discussion of labour supply and demand side factors that could influence the gap. The analysis in this thesis begins by measuring and comparing the male and female mean and distributional labour market characteristics and the returns to characteristics in 2001 and 2012. The results show that women’s labour market characteristics have improved compared to men’s characteristics; however, women’s relative returns to characteristics have not increased. Next, the gender wage gap is estimated at the mean and along the wage distribution, decomposed, and compared over time. The results show that the mean and distributional gender wage gap has increased over time and the gap is increasingly unexplained by differences in labour market characteristics. The comparison over time extends prior static estimates of the gender wage gap. The gender wage gap is then estimated using panel data and fixed effects methods to account for time-invariant unobserved individual heterogeneity. This is the first time that the Australian gender wage gap has been measured by taking into account individual fixed effects. The fixed effects results are compared with the results of traditional estimation methods and prior research. The comparison shows that time-invariant unobserved individual heterogeneity constitutes 62 per cent of the gender wage gap and that the Australian gender wage gap has previously been overestimated by approximately 7 percentage points. The inclusion of time-invariant unobserved individual heterogeneity in the estimation provides a clearer measure of gender based earnings differentials. The gender wage gap is measured by sector of employment – the Australian private and public sector – using panel data and time-invariant individual fixed effects methods. The results are compared with findings from traditional methods and prior research. This is the first time that the Australian sector-specific gender wage gap has been estimated by incorporating time-invariant unobserved individual heterogeneity. The results show that traditional estimation methods overestimate the gender wage gap by 6 percentage points in the private sector and 4 percentage points in the public sector. Time-invariant unobserved individual heterogeneity explains 42 per cent of the gender wage gap in the private sector and 41 per cent of the gender wage gap in the public sector. Further, the distributional sector-specific gender wage gap is larger and increases faster in the private sector compared to the public sector. The sector-specific gender wage gap is increasingly unexplained by differences in labour market characteristics along the wage distribution. To the knowledge of the author, this is the first time that very detailed estimates of the Australian gender wage gap have been compared over time. This is also the first time that the Australian gender wage gap has been measured by taking into account time-invariant individual fixed effects. The results highlight that the gender wage gap has increased over time and that unobserved individual heterogeneity need to be incorporated in the estimation of the Australian gender wage gap as traditional estimation methods tend to overestimate the gap. Keywords: Gender wage gap; fixed effects; Australian public and private sectors; wage distributions; decompositions.