The Widening Gender Gap

Abstract

What explains the persistence of the gender gap? The World Economic Forum Gender Gap Index documents the persistence of the gender gap and, more surprising yet, the data validates that in the last decade the gender gap has grown wider. Why? We provide here a rational market explanation of the gender gap and explain why it is growing wider. We show that the logic of the market is rational but it leads to a prisoner's dilemma situation based on the interaction between two different interlinked institutions: the market and the family. We show that inequity at home leads to inequity at work and vice versa. A Nash rational response when women are paid less than men in the marketplace is to use women for longer hours at home. Reciprocally, inequity at home reduces women's productivity in the marketplace and leads to wage inequality. This leads to the gender gap and specialization. But is specialization an optimal solution? We show it is Pareto inferior at higher levels of productivity. Due to learning by doing, the optimal division of labor is initially specialization; however, we prove that at higher levels of learning by doing the optimal solution is equal share rather than specialization. Therefore the gender gap and specialization are rational but inferior solutions, a version of the prisoner's dilemma. We are all prisoners of gender discrimination. We show that the higher we are in the learning curve and the more well-compensated jobs open to women, the larger is the gender gap, explaining why the gap has increased in the last decade. Laws that include both institutions - labor markets and family law - are required for society to reach equity and higher levels of welfare and efficiency for all.

Keywords: gender inequality, wage gap, specialization, gender discrimination

JEL Classification: A13, B29, D02, D63, J71, J16, K38, E24, J38