Gender Discrimination Estimation in a Search Model with Matching and Bargaining

Abstract

Gender wage differentials, conditional on observed productivity characteristics, have beenconsidered a possible indication of prejudice against women in the labor market. However,there is no conclusive evidence on whether these differentials are due to labor marketdiscrimination or to unobserved productivity differences. The objective of this paper is topropose a solution for this identification problem by developing and estimating a searchmodel of the labor market with matching, bargaining and employers' taste discrimination. Inequilibrium all types of employers wage discriminate women: prejudiced employers becauseof preference and unprejudiced employers because of spillover effects that worsen thebargaining position of women. Estimation is performed by maximum likelihood on CurrentPopulation Survey data for the year 1995. Results indicate that the productivity of women is6.5% lower than the productivity of men and that about half of the employers are prejudicedagainst women. Three policy experiments are implemented using the estimated parameters:an equal pay policy, an affirmative action policy and a wage differential decomposition thattakes into account equilibrium effects.

Keywords: maximum likelihood, search models, discrimination, gender differentials, estimation, structural estimation, affirmative action

JEL Classification: C51, J7, J64