Gender gaps in wages and leadership positions
are large—Why, and what can be done about it?
Gender wage gaps and women’s underrepresentation
in leadership positions exist at remarkably similar magnitudes across
countries at all levels of income per capita. Women’s educational attainment
and labor market participation have improved, but this has been insufficient
to close the gaps. A combination of economic forces, cultural and social
norms, discrimination, and unequal legal rights appear to be contributing to
gender inequality. A range of policy options (such as quotas) have been
implemented in some countries; some have been successful, whereas for others
the effects are still unclear.
The size and wage level of the public sector affect overall
employment volatility and the economy
Public sector jobs are created because governments opt to
provide goods and services produced directly by public employees. Governments, however, may
also choose to regulate the size of the public sector in order to stabilize targeted national
employment levels. However, economic research suggests that these effects are uncertain and
critically depend on how public wages are determined. Rigid public sector wages lead to
perverse effects on private employment, while flexible public wages lead to a stabilizing
effect. Public employment also has important productivity and redistributive effects.
Wages affect productivity and non-wage costs;
this carries important labor market and policy implications
Higher wages increase labor costs but also
improve the productivity of the labor force in several ways. If firms take
this into account and set their wages accordingly, the resulting wages could
fail to adjust demand and supply but may induce phenomena like
over-education, discrimination, regional wage differentials, and a tendency
for larger firms to pay higher wages. All these phenomena are quantitatively
important and well-established empirically. Efficiency wage theory provides
an integrated theoretical explanation rather than a sundry list of reasons,
and offers an efficiency argument for progressive income taxation.
Are low-paid jobs stepping stones to higher paid
jobs, do they become persistent, or do they lead to recurring
Low-wage employment has become an important
feature of the labor market and a controversial topic for debate in many
countries. How to interpret the prominence of low-paid jobs and whether they
are beneficial to workers or society is currently an open question. The
answer depends on whether low-paid jobs are largely transitory and serve as
stepping stones to higher-paid employment, whether they become persistent,
or whether they result in repeated unemployment. The empirical evidence is
mixed, pointing to both stepping-stone effects and “scarring” effects (i.e.
long-lasting detrimental effects) of low-paid work.
The Mincer equation gives comparable estimates
of the average monetary returns of one additional year of education
The Mincer equation—arguably the most widely
used in empirical work—can be used to explain a host of economic, and even
non-economic, phenomena. One such application involves explaining (and
estimating) employment earnings as a function of schooling and labor market
experience. The Mincer equation provides estimates of the average monetary
returns of one additional year of education. This information is important
for policymakers who must decide on education spending, prioritization of
schooling levels, and education financing programs such as student
Reducing under-reporting of salaries requires
In transition economies, a significant number of
companies reduce their tax and social contributions by paying their staff an
official salary, described in a registered formal employment agreement, and
an extra, undeclared “envelope wage,” via a verbal unwritten agreement. The
consequences include a loss of government income and a lack of fair play for
lawful companies. For employees, accepting under-reported wages reduces
their access to credit and their social protections. Addressing this issue
will help increase the quality of working conditions, strengthen trade
unions, and reduce unfair competition.
Incidence of piecework has significantly reduced
in advanced industrialized economies—has its decline gone too far?
A pieceworker receives a fixed rate for each
unit (“piece”) produced or action performed. In part, the rate reflects a
cost of monitoring output. A timeworker receives a fixed wage rate per hour
that, in the short term, does not vary with output performance. From the
18th century up to the last third of the 20th century these were the two
dominant payment methods in the manufacturing and production industries.
Yet, today the incidence of piecework in advanced economies is very small,
having lost considerable ground to time rates and to other forms of
incentive pay. What caused this transformation, and has the movement away
from piecework gone too far?
Minimum wages reduce entry-level jobs, training,
and lifetime income
Policymakers often propose a minimum wage as a
means of raising incomes and lifting workers out of poverty. However,
improvements in some young workers’ incomes as a result of a minimum wage
come at a cost to others. Minimum wages reduce employment opportunities for
youths and create unemployment. Workers miss out on
opportunities that would have been paid for by reduced wages upfront but
would have resulted in higher wages later. Youths who cannot find jobs must
be supported by their families or by the social welfare system. Delayed
entry into the labor market reduces the lifetime income stream of young
To boost the employment rate of the low-skilled
trapped in inactivity is it sufficient to supplement their earnings?
High risk of poverty and low employment rates
are widespread among low-skilled groups, especially in the case of some
household compositions (e.g. single mothers). “Making-work-pay” policies
have been advocated for and implemented to address these issues. They
alleviate the above-mentioned problems without providing a disincentive to
work. However, do they deliver on their promises? If they do reduce poverty
and enhance employment, can we further determine their effects on indicators
of well-being, such as mental health and life satisfaction, or on the
acquisition of human capital?
Policies to tackle wage inequality should focus
on skills alongside reform of labor market institutions
Policymakers in many OECD countries are
increasingly concerned about high and rising inequality. Much of the
evidence (as far back as Adam Smith’s ) points to the importance of skills in tackling wage
inequality. Yet a recent strand of the research argues that (cognitive)
skills explain little of the cross-country differences in wage inequality.
Does this challenge the received wisdom on the relationship between skills
and wage inequality? No, because this recent research fails to account for
the fact that the price of skill (and thus wage inequality) is determined to
a large extent by the match of skill supply and demand.