Lawrence M. Kahn

International Differences in Male Wage Inequality: Institutions Versus Market Forces

This paper studies the considerably higher level of wage inequality in the United States than in nine other OECD countries. We find that the greater overall U.S. wage dispersion primarily reflects substantially more compression at the bottom of the wage distribution in the other countries. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, higher U.S. prices (i.e., rewards to skills and rents) are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the United States, provide the most persuasive explanation for these patterns.

Wage Structure and Gender Earnings Differentials: an International Comparison

Using microdata to analyze the gender pay gap in ten industrialized nations, the authors focus on the role of wage structure--the prices of labor market skills in influencing the gender gap. They find wage structure enormously important in explaining why the U.S. gender gap is higher than that in most other countries. The authors conclude that the U.S. gap would be similar to that in Sweden and Australia (the countries with the smallest gaps) if the United States had their levels of wage inequality. This finding reflects the larger penalty in the United States for those with low skill levels or employed in low-wage sectors. Copyright 1996 by The London School of Economics and Political Science.

The U.S. Gender Pay Gap in the 1990s: Slowing Convergence

Using Michigan Panel Study of Income Dynamics (PSID) data, the authors study the slowdown in the convergence of female and male wages in the 1990s compared to the 1980s. They find that changes in human capital did not contribute to the slowdown, since womens relative human capital improved comparably in the two decades. Occupational upgrading and deunionization had a larger positive effect on womens relative wages in the 1980s than in the 1990s, explaining part of the slower 1990s convergence. However, the largest factor was a much faster reduction of the “unexplained” gender wage gap in the 1980s than in the 1990s. The evidence suggests that changes in labor force selectivity, changes in gender differences in unmeasured characteristics and in labor market discrimination, and changes in the favorableness of demand shifts each may have contributed to the slowing convergence of the unexplained gender pay gap.

Race and Sex Differences in Quits by Young Workers

This study uses data from the National Longitudinal Surveys of young men and women to analyze race and sex differences in the probability and consequences of quitting. The authors find that overall quit rates in this group are higher for women than for men and about the same for blacks and whites. When several personal and job characteristics are held constant, however, the quit rates of young men and women are about the same and young blacks actually quit less frequently than young whites. When an instrumental variable approach is used to account for sample heterogeneity, it is found that, for all race and sex groups, quitting improved both current wages and long-term earnings prospects. Further, the improvement in long-term earnings prospects is found to be greater than the gain in current earnings, suggesting that training opportunities are an important consideration in the job shifts of all young people.

Discrimination in Professional Sports: A Survey of the Literature

This paper reviews studies of racial and ethnic discrimination in professional sports and briefly examines gender differences in pay among professional tennis players. Many of these studies include far more extensive controls for individual ability and performance than typical studies of discrimination that use labor force data. The cited studies show evidence of salary discrimination and customer discrimination against blacks in basketball, and positional segregation on the basis of race or ethnicity in baseball, football, and hockey. More limited evidence is found for the existence of salary discrimination and fan discrimination against French-Canadian hockey players and fan preferences for white baseball players. Finally, at several Grand Slam tennis tournaments, the money prize for the womens winner is somewhat smaller than that for the mens winner, despite some evidence that the womens matches draw at least as much revenue as the mens matches.

Institutions and laws in the labor market

This chapter examines the impact of wage-setting institutions and government policies on wages and employment, focusing on the OECD countries. There is considerable evidence that centralized collective bargaining, minimum wages and antidiscrimination policies raise the relative wages of the low paid. Evidence of the impact of these institutions and other policies such as mandated severance pay, advance notice or unemployment insurance is more mixed with some studies finding negative employment effects while others do not. This may reflect the adoption by many OECD countries of off-setting policies, such as public employment, temporary employment contracts and active labor market programs, which, while they may have reduced the adverse relative employment effects of their less flexible labor market institutions on the low skilled, appear not to have prevented high overall unemployment.

Racial Differences in Professional Basketball Players' Compensation

This article investigates racial differences in 1985-86 salaries of individual professional basketball players. White and black players earn similar mean compensation; however, controlling for a variety of productivity and market-related variables and for the endogeneity of player draft position, we find a significant ceteris paribus black compensation shortfall of about 20%. Further, we find that all else equal, including team performance and market factors, replacing one black player with an identical white player raises home attendance by 8,000 to 13,000 fans per season. The compensation and attendance results together are consistent with the idea of customer discrimination.

The Impact of Employment Protection Mandates on Demographic Temporary Employment Patterns: International Microeconomic Evidence

Using 1994-98 International Adult Literacy Survey (IALS) microdata, this paper investigates the impact of employment protection laws on the incidence of temporary employment by demographic group. More stringent employment protection for regular jobs is predicted to increase the relative incidence of temporary employment for less experienced and less skilled workers. I test this reasoning using IALS data for Canada, Finland, Italy, the Netherlands, Switzerland, the United Kingdom and the United States, countries with widely differing levels of mandated employment protection. Across these countries, the strength of such mandates (as measured by the OECD) is positively associated with the relative incidence of temporary employment for young workers, native women, immigrant women and those with low cognitive ability. These effects largely hold up when I adjust for the possible sample selection due to the fact that employment to population ratios differ across countries. Moreover, the effects of protection on the young, women, and immigrants are stronger in countries with higher levels of collective bargaining coverage, suggesting a connection between binding wage floors and the allocative effects of employment protection mandates.

Do Cognitive Test Scores Explain Higher U.S. Wage Inequality

Using microdata from the 19941998 International Adult Literacy Survey for nine countries, we examine the role of cognitive skills in explaining higher wage inequality in the United States. We find that while the greater dispersion of cognitive test scores in the United States plays a part in explaining higher U.S. wage inequality, higher labor market prices (i.e., higher returns to measured human capital and cognitive performance) and greater residual inequality still play important roles, and are, on average, quantitatively considerably more important than differences in the distribution of test scores in explaining higher U.S. wage inequality.

Contingent Pay and Managerial Performance

This paper uses longitudinal data on managers from one company to examine the relationship between financial incentives and performance. One important finding is that bonuses for managers who are in high-level positions, work at corporate headquarters, and have low seniority are more sensitive to performance than are the bonuses given to managers without those three characteristics. A second important finding is that the managers for whom bonuses are most sensitive to performance have higher subsequent performance levels than other managers, even when past performance levels are controlled for. Merit pay, in contrast to bonuses, appears to be awarded on the same basis across managerial levels, plant locations, and seniority levels, and differences in the sensitivity of merit pay to performance appear to have no significant effect on subsequent performance.