Home production and discrimination: a joint explanation for recent trends of gender differentials in education and in the labor market

The two main trends in gender differentials in the last decade suggest an apparently contradictory picture: women still experience a significant negative differential in wages but not in education, where they moved from a negative to a positive differential. We propose and estimate a model where employer’s discrimination is allow to change over-time. Females have the same preferences as males, and, other things being equal, would, on average, make the same human capital investment and labor market decisions. However, because of an (endogenous) comparative advantage in child rearing, more women choose to suspend labor market attachment than their male partners in their prime age. Hence, because of a standard statistical discrimination argument, they receive lower labor market outcomes than males. The only way they can compensate for the loss arising from statistical discrimination is to choose higher investment in human capital, generating equilibria where female average human capital investment is higher than males'. If discrimination is too high, however, no reasonable amount of higher human capital investment can compensate for the difference and more women choose to specialize in home production