Home Production, Market Production and the Gender Wage Gap: Incentives and Expectations

This paper explores the hypothesis that gender wage differentials arise from the interaction between the intra-household allocation of labor and the contractual relation between firms and workers in the presence of private information on workers’ labor market attachment. In our model, if firms believe women to be less attached to market work than men, they will offer them labor contracts with lower earnings and lower hours even in the absence of gender differences in productivity. This implies that it is efficient for wives to allocate more time to home production. Hence, women will be less attached to market work and firms’ expectations are confirmed. If firms instead believe that labor market attachment is the same across genders, they will offer the same labor contracts to male and female workers. Then, the efficient intra-household allocation of labor will not be related to gender. It is statistical discrimination that determines gender differentials in the first type of equilibrium. Given that firms may use gender as a screening device, discrimination actually reduces the incentive problem for firms, eliminating adverse selection. Additionally, our model predicts that, in equilibria with female discrimination, gender earning gaps should be higher in industries/occupations in which the incentive problem is more severe. We use Census data for year 2000 to show that this is the case.