COMPARISONS IN GENDER WAGE DIFFERENTIALS AND DISCRIMINATION BETWEEN GERMANY AND THE UNITED KINGDOM BY MICK BROOKES, TIMOTHY HINKS AND DUNCAN WATSON *#

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1 COMPARISONS IN GENDER WAGE DIFFERENTIALS AND DISCRIMINATION BETWEEN GERMANY AND THE UNITED KINGDOM BY MICK BROOKES, TIMOTHY HINKS AND DUNCAN WATSON *# ABSTRACT Due to the lack of consstent data, drect and robust comparsons of cross-country labour markets have been vrtually mpossble. Ths study uses a new panel data seres that controls for nconsstences, thus overcomng ths problem. Ths study estmates gender wage dfferentals and gender dscrmnaton n the German and Unted Kngdom labour markets. Panel estmates are used to dentfy general wage dfferences between the two countres, wth cross-sectonal comparsons undertaken to dentfy changes that have occurred between 1991 and 1993, that are consstent wth known labour market polces. It s found that gender wage dfferentals are greater n the UK than Germany wth employer dscrmnaton aganst females attrbuted wth the majorty of the dfference n both countres. (JEL Codes: J160, J400, J700) * Centre for Appled Research n Economcs, Mddlesex Unversty Busness School, London NW4 4BT # The authors wsh to thank IRISS at Ceps/Instead for fnancal and academc support. 1

2 I INTRODUCTION Snce the early 1970s the wage gap between males and females has come under ncreased scrutny by Western governments, ncludng the Unted Kngdom (UK) and Germany. In order to combat apparent gender (and race) dscrmnaton n the UK labour market, government ntroduced the 1970 Equal Pay Act (EPA). Whlst the Act prohbts any form of wage dscrmnaton aganst both males and females, n realty the majorty of people t affected were female. Followng the EPA was the Sex Dscrmnaton Act (SDA) of 1975, desgned to be wder reachng than the EPA. As well as focussng on wage dscrmnaton, the SDA covered dscrmnaton by employers n recrutment, n all aspects of ther treatment of exstng employees and when termnatng employment, (Department of Trade and Industry (DTI), Employment Legslaton, Secton 3, 1999). Ths countered both occupatonal dscrmnaton and gender dscrmnaton n nternal labour markets (see Becker, 1971: Doernger and Pore, 1971). The Act dd not focus just on employers, wth trade unons, employment agences and tranng bodes (ncludng apprentceshp schemes) also havng to conform to the SDA or face prosecuton. A problem wth the EPA was that employers evaluated whch jobs were smlar or what s termed work rated equvalent. These evaluatons were open to abuse on the employers behalf. They could feasbly underpay females relatve to males by clamng the job-specfcs were dfferent, when n realty they were very smlar. Not untl 1984 was ths loophole n the EPA addressed followng the nterventon of the European Court of Justce that argued ndependent experts should be allowed to undertake work rated equvalent evaluatons so as to dmnsh employer dscrmnaton. The SDA too suffered from smlar problems. For a woman to suffer from drect dscrmnaton, t had to be proved that she had been treated dfferently to a hypothetcal man n smlar crcumstances (The Brtsh Councl, 1999). Women dsmssed from work for beng pregnant faled to wn cases of unfar 2

3 dsmssal snce equvalent males dd not exst. Not untl 1992 were such dsmssals deemed unlawful followng a judgement by the European Court of Justce. Ant-dscrmnaton legslaton n Germany can be traced to the equal opportunty legslaton pror to 1975, and equal pay legslaton n 1980 (Whtehouse, 1992). Smlar to the EPA and SDA n the Unted Kngdom, employees were to be pad accordng to the prncple of equal value. As n the UK equal value was determned by job evaluaton conducted by employers but also ndependent experts so as to reduce the scope for drect employer dscrmnaton aganst females (See Bertelsmann and Rust, 1995). In order to further combat gender dscrmnaton German governments snce the early 1980s have mplemented an affrmatve acton polcy n the publc sector. Essentally job reservaton polces for female workers, three prncpal enforcement strateges have been adopted to ensure ts success. Frstly, flexble quotas, whch gve preferental treatment to women over equally qualfed men n employment and promoton decsons n those areas where under-representaton s deemed to exst. A more contentous polcy s that of strct quotas, where a percentage of postons for females are reserved despte the possblty of equally/better qualfed males beng a better job-match. The fnal strategy of equty plans, produced by employers to address any under-representaton of females, s the least prescrptve employment polcy. Gven the more drect equal pay/opportunty legslaton of Germany relatve to the UK, ths paper ams to estmate gender wage dfferentals n the Unted Kngdom and German labour markets between 1991 and 1993 and decompose these nto varous dscrmnatory components that can be nterpreted economcally. Unlke prevous studes that are revewed n Secton II, t wll be possble to drectly compare female wage gaps n the Unted Kngdom and Germany. The two countres are chosen because of the perceved nternatonal advantage of German women over UK women relatve to men (Unted Natons Development Programme, 1995). The prmary obstacle of such a 3

4 comparatve analyss has been a shortage n consstent data sets, whch causes problems of statstcal bas n comparng results across countres. Secton III ntroduces the recently conceved PACO data set from the Panel Comparablty Project, whch allows cross-country comparsons to be made. In Secton IV the decomposton models used are ntroduced, whch allow employer/employee dscrmnaton and employer nepotsm to be dentfed. A random-effects panel model s estmated n Secton V for wth a dscusson of both regresson and dscrmnaton estmates. Crosssectonal analyses are then undertaken to dentfy specfc changes (f any) that have occurred n the tme frame. The paper also ams to dentfy whether gender wage dfferentals and gender dscrmnaton dffer n sze between the publc sector and prvate sector n the Unted Kngdom and Germany. Ths s motvated by successve German governments support for a polcy of affrmatve acton n the publc sector snce the early 1980s. In addton the paper consders the effect of the change n the Unted Kngdom s Sex Dscrmnaton Act n 1992 and the role of nsders compared to outsders wth respect to the wage rate. A summary and concluson follow n Secton VI. II IMPACT OF EQUAL PAY LEGISLATION AND PREVIOUS EVIDENCE OF GENDER DIFFERENTIALS AND DISCRIMINATION IN GERMANY AND THE UNITED KINGDOM Decreasng gender dscrmnaton has been a consstent feature of both the UK and German labour markets. In the Unted Kngdom the gender wage gap declned durng the perod 1970 to 1977 from 58 per cent of the male wage to 69 per cent (Zabalza and Arrufat, 1985). In the same perod relatve female employment ncreased by 1.7 per cent per year, though ths reflects ncreasng part-tme employment ndcated by the relatve employment-relatve hours worked gap ncrease. Evdence for Germany s more lmted because of ts poltcal unfcaton n However, studes usng West German data ndcate a declne as n the UK. 4

5 One problem wth these conclusons s that n most emprcal studes no account s taken of the dfferent experences of the publc sector and prvate sector. Zabalza and Arrufat (1985) crudely attempted to decompose the UK labour market accordngly, and fnd that relatve employment of females n the prvate sector ncreased far less than n the publc sector, wth the fgure actually declnng between 1974 and On an optmstc note they found the overall employment trend between 1950 and 1980 was upwards n the prvate sector. To determne the affects of the ant-dscrmnaton legslaton on female/relatve pay n the UK, Zabalza and Arrufat (1985) undertook a smple tme-seres analyss. They found that antdscrmnatory legslaton ncreased female relatve pay by 19 per cent n the frst half of the 1970s, wth approxmately 75 per cent of ths attrbuted to the years 1974 and 1975, when the EPA and SDA were frst fully mplemented (bd, p 2). Chpln and Sloane (1976, p 739) estmated that gender wage dscrmnaton ranged between 4.1 per cent to 45.2 per cent of the total wage dfferental n , or equvalently 0.6 per cent to 4 per cent of the male wage. Ths ndcates the ndex number problem wth the poneerng work of Oaxaca when decdng whch wage structure, male or female, to use. Usng the 1971 and 1975 General Household Surveys, Greenhalgh (1980) estmates dscrmnaton aganst marred females declnes from 46 per cent of the male wage n 1971 to 36 per cent n The fgure for sngle women relatve to sngle men also declned from 24 per cent to 10 per cent. Zabalza and Tzannots (1985) confrm Greenhalgh s fndngs, calculatng gender dscrmnaton as 26 per cent of the male wage n These studes are consstent wth the hypothess that the EPA and SDA reduced the gender wage dfferental by a once-and-for-all ncrease n the wage of females (Ashenfelter and Layard, 1983). Further research by Tzannotos and Zabalza, (1984) and Zabalza and Tzannotos, (1985) ndcated that alternatve explanatons for ths relatve wage ncrease, such as deteroraton n male 5

6 pay, ncrease n hgh-status female employment, and sudden changes n demand for female labour relatve to male labour, were wthout foundaton. Work by Zabalza and Arrufat (1982, 1985) estmate the dscrmnaton component between marred males and females to be far lower than prevous studes, fndng female dscrmnaton was just 6 per cent of the gender wage dfferental. Ths contrasts wth the study by Mller (1987) who when usng an dentcal model to that of Zabalza and Arrufat fnds women s wages n 1980 would be 14 per cent hgher n the absence of dscrmnaton 1. Adoptng a more complex probt model, Mller fnds that 17 of the 50 per cent natural logarthm wage dfference between marred females and marred males could be attrbuted to dscrmnaton, or equvalently 13 per cent of the male wage. Dolton and Makepeace (1986) usng cohort data that ncluded actual work experence found that female 1970 graduates ntervewed n 1977 would earn 20 per cent more n the absence of dscrmnaton. A smlar cohort study by Josh and Newell (1987) found that females born n 1946 would earn 51 per cent more when 26 years of age and 27 per cent more when 32 years of age, n the absence of dscrmnaton. Wrght and Ermsch (1991) found that usng actual labour experence or mputed labour experence made no sgnfcant dfference to estmates of gender dscrmnaton, wth the fgure hoverng around 20 per cent of the male wage level n Usng data sets from the post-1980 perod yeld far hgher estmates of gender dscrmnaton, whlst far lower gender wage dfferentals. Blanchflower and Oswald (1989) undertook a smple wage regresson analyss wth gender dscrmnaton estmated by a dummy varable, for seven countres based on data for Cetrus parbus, they found that Brtsh women suffered the hghest dscrmnaton, beng underpad 56 per cent relatve to males wth the equvalent fgure for German 1 For a crtque of Zabalza and Arrufat, see Wrght and Ermsch (1991). 6

7 women beng 46 per cent 2. Pac and Josh (1996) estmated full-tme female earnngs would be 17 per cent hgher f dscrmnaton were absent, or equvalently gender dscrmnaton was 8 per cent of the male wage n Usng the Brtsh Household Panel Survey Harkness (1996) estmates gender dscrmnaton for full-tme women to be 20 of the 22 per cent logarthmc wage dfferental. For part-tme females the fgure s far lower at 14 of a 42.6 per cent wage dfferental. Consstent wth the Harkness study s Black, Tranor and Spencer (1999) who fnd that gender dscrmnaton may cause 47 of the 56 per cent logarthmc gender wage dfferental, or equvalently 26 per cent of the male wage n Relatvely lttle work has been undertaken wth regard to the German labour market, not least because of the massve upheavals that have taken place snce the ntegraton of East and West Germany n Before ths date, Gerlach (1987) estmated gender dscrmnaton as a percentage of the male wage to be 9 per cent usng a 1981 random sample data set for the Bremen regon. Hubler (1991) usng cross-sectonal data for 1984 to 1986 estmated that dscrmnaton was ncreasng n Germany to a fgure over 38 per cent n Black, Tranor and Spencer (1999) fnd that 32 of the 33 per cent wage dfferental can be attrbuted to dscrmnaton, whlst n terms of the logarthmc male wage, dscrmnaton s calculated at 16 per cent. III THE DATA Data from the Panel Comparablty Project (PACO) for 1991 to 1993 s used. Ths data s unque snce t provdes harmonsed and consstent varables across countres by recodng and regroupng panel data over a varety of countres and so makes cross-country comparsons possble 3. The panel sample was reduced from 33,049 (Germany 18,041 the UK 15,008) to 21,300 snce the survey s 2 Ths study can be crtcsed for not consderng the sample selectvty bas. Also Black et al (1999, p 453) argue that because Blanchflower and Oswald use potental experence, n the form of age, nstead of actual or mputed experence ther estmate of returns to experence are based downwards, and the dscrmnatory term correspondngly based upwards. 7

8 concerned wth employed persons n the age bracket. Of ths sample 6,984 were German men, 4,938 German women, 4,598 Unted Kngdom men and 4,780 Unted Kngdom women. The wage regressons comprse of a educaton term, potental labour market experence and ts square, nsderoutsder dummy varables, a part-tme dummy varable, number of chldren, whether the ndvdual s marred and year dummes for 1991 and The nsder varable was defned as an ndvdual who had been employed n the current job for over 5 years. An outsder was an ndvdual who had remaned n ther current job for less than 2 years, wth the base varable beng the ntated worker wth 2-5 years job-specfc experence. It was expected that nsders would earn more than outsders due to a job-specfc productvty advantage 4. To decompose the gender wage dfferental for the panel study the pooled non-dscrmnatory wage structure was adopted from Oaxaca and Ransom (1994). Ths allows wage dscrmnaton to be decomposed nto male overpayment and female underpayment, whch are consstent wth employer nepotsm/employee dscrmnaton and employer dscrmnaton respectvely. In order to observe changes n dscrmnaton between 1991 and 1993, cross-sectonal regressons are undertaken. Usng the logt non-dscrmnatory model of Hnks and Watson (1999), job dscrmnaton s also dentfed. To solate the relatve mportance of the publc and prvate sector, the gender wage dfferentals of both are decomposed agan usng the pooled model. In ths way the analyss allows the characterstcs and determnants of the gender wage dfferentals n both the German and UK labour markets to be dentfed. 3 The Brtsh Household Panel Study (BHPS) and the Sozo-Oekonomsches Panel/Bundesrepublk Deutschland (SOEP) are the respectve data sets utlsed by PACO and subsequently used n ths study. 8

9 IV METHODOLOGICAL FRAMEWORK The standard method used to estmate gender dscrmnaton s to follow a wage decomposton technque poneered by Oaxaca (1973). Ths s based on neo-classcal labour theory that predcts any wage dfferental that occurs between males and females s caused by productvty dfferences, such as dfferences n human captal nputs. The decomposton technque controls for such explaned human captal dfferences but also solates the unexplaned wage dfferental that mght exst. It s ths unexplaned component whch s nterpreted as dscrmnaton. The logarthmc gender wage dfferental s gven as, ln( G + 1 ) ln W ln W, where ln W g s mf m f the mean of the log of wages for the respectve genders, and m and f subscrpts denote male and female workers 5. In order to estmate job dscrmnaton, the proporton of females ( p f ) and proporton of males ( p m ) n the publc and prvate sector are ncluded n the decomposton. Ths means expandng the log dfferental to, ln( G + 1 ) = [ p ln W p ln W ]. Defnng $p f as the mf m m f f proporton of female workers that would be n ether the publc or prvate sector, then assumng an dentcal occupatonal attanment functon to males, ln( G + 1 ) = ln W ( p p$ ) + ln W ($ p p ) + p (ln W ln W ). (1) mf m m f m f m f m f The frst term on the rght hand sde of Equaton (1) represents the explaned job dfference between males and females. The second term cannot be explaned by wthn-sectoral characterstc 4 The returns to beng an nsder are based downwards, snce those ndvduals who dd not respond to how long they had been employed were desgnated outsders. They were not omtted from the sample because of a sample sze problem. For a revew of nsder-outsder theory see Lndbeck and Snower (1988). 5 The gender wage dfferental and subsequent decomposton s performed usng logarthms snce the log-lnear earnngs functon gves a better ft than the lnear earnngs functon. 9

10 dfferences and represents job dscrmnaton. The fnal term represents the wthn-sector gender wage dfferental. The proportons p m and $p f are estmated usng a logt model, wth p$ f = f( ψ ), where ψ s a set of ndependent varables chosen later. The publc and prvate sectors are ndexed by (=1,2). The probablty that ndvdual j wth a vector of characterstcs z = ( 1, z 2, z 3,...) wll be assgned to sector k s j j j $ exp ~ N p z / exp ~ kj = β k j β z j, where ~ β s the vector of coeffcents correspondng to the publc or prvate sector wage regresson. Snce the probabltes must sum to unty across all occupatonal groups they are normalzed arbtrarly for computatonal purposes. Decomposng the wthn-sector wage dfferental by estmatng a compettve wage structure allows us to estmate Equaton (2), ~ ~ ln( G + 1 ) = β ( X )( p p$ ) + β ( X )($ p p ) + mf m m m f m m f f f m f f m m f f f p [ β ~ ( X X )] + p [ X ( ~ ~ )] + p [ X ( ~ ~ * β β * β * β )]. (2) where, p [ ~ * β ( X X )] represents male productvty advantage n the publc and prvate f m f sectors, p [ X ( ~ ~ * β β )] s male overpayment and p [ X ( ~ ~ * β β )] s female f m m f f f underpayment. The compettve wage structure ~ * β s estmated usng the pooled model of Oaxaca and Ransom (1994) based on a weghted matrx composed of the productvty characterstcs of 10

11 males and females 6. Ths latter extenson of decomposton allows the sources of dscrmnaton to be developed from the Becker (1971) model of dscrmnaton. In Becker s neo-classcal model ndvduals, whether they be employers, employees or consumers, can hold dscrmnatory tastes aganst certan people or groups of people 7. Employee dscrmnaton s charactersed by an overpayment to workers, assumed to be male, snce they requre a fnancal compensaton for workng alongsde female workers because of ther taste for dscrmnaton. Employer nepotsm s also charactersed by male worker overpayment, wth the male employer ganng a greater nonmonetary beneft from employng male rather than female workers, whch ncreases the demand for male workers. Fnally, employer dscrmnaton s nferred when female workers are underpad because ths provdes compensaton for the dscrmnatory employer s non-monetary cost. V PANEL AND CROSS-SECTIONAL REGRESSIONS AND GENDER WAGE DECOMPOSITIONS In order to gan more general nformaton concernng the hstory of ndvdual workers over the perod , random-effects panel models (REM) are used for both the Unted Kngdom and German labour markets. Ths nvolves applyng generalsed least squares technques to estmate the followng relatonshp for ndvdual over the tme perod, t: w t = b'x t + λ + ε t, 6 Other non-dscrmnatory wage structures can be found, Cotton (1988), and Neumark (1988). 7 Other theores of dscrmnaton developed by Becker nclude consumer dscrmnaton, government (nsttutonal) dscrmnaton, and market dscrmnaton. Alternatve theores of dscrmnaton can be found n Bergmann (1971), Roemer (1979), Phelps (1972), and Lang (1986), wth extensons of Becker s work found n Goldberg (1982), and Naylor (1994). 11

12 where, w s ndvdual s log wage, x s a vector of ndvdual characterstcs affectng human captal. Followng Greene [1993, p470] we assume E( λ ) E( ε ) = = 0. The component, λ, s an ndvdualspecfc term and s constant over tme. In our analyss t can be nterpreted as unobserved labour qualty. The random-effects procedure, therefore, models ndvdual-specfc dfferences and reduces bases n the estmaton of gender wage dscrmnaton. t The base model was a marred part-tme, publc sector, ntated worker n The regresson results presented n Table 1 ndcate that returns to educaton dffer between the two countres, wth males and females n the UK havng greater returns than ther respectve German equvalents 8. As expected the general labour market experence term affects wages at a dmnshng rate for all the samples whle the estmates of job-specfc experence are consstent wth the nsder-outsder hypothess. In the UK outsders receve a far lower wage than other workers, wth males facng a 10 per cent defct to ntated workers and females a 16 per cent defct. In Germany the wage dfferentals are far hgher between outsders and ntated workers, wth male (female) outsders earnngs 22 (18) per cent less than ntated workers. When comparng nsder and ntated workers between countres, German nsders postvely and sgnfcantly affect the wage rate. Ths s not true n the Unted Kngdom, supportng the vew that German nsders have greater power than UK nsders. Ths s expected snce Germany has 90 per cent coverage of unon collectve barganng compared to 47 per cent n the UK (OECD, 1994: Adnett, 1996). An unexpected fndng was that the returns to part-tme workers are postve and sgnfcant for German males and females, and for UK males. Only for women n the UK does part-tme employment have the expected negatve effect on the wage rate. Publc sector women n both 8 It s acknowledged that the regressons suffer from omtted varable bas. Secondly a self-selecton bas occurs whch s controlled for n the ntal cross-sectonal analyss by estmatng Lee s (1983) logt selecton model. 12

13 Germany and the UK earn respectvely 14 and 15 per cent more than prvate sector female workers, a fndng contrary to expectaton gven the hgher degree of flexblty n the pay structure of the (prvate) sector (Josh and Pac, 1998: 73). The German estmate s consstent wth the affrmatve acton polcy of German governments snce the early 1980s and could well have helped attract more productve females wth the guarantee of employment at a far wage. When separate regressons were undertaken for German females n the prvate and publc sectors ths argument was borne out, wth returns to educaton and experence n publc sector employment almost double that n the prvate sector. By comparson both UK and German male workers earn less n the publc sector than n the prvate sector 9. However, only n the UK s the publc sector varable both negatve and sgnfcant at -25 per cent. (cf. table 1) Estmates of returns to beng marred and havng chldren do not follow any partcular pattern. Returns to beng marred are postve and sgnfcant for males and females n the UK, whlst for German females t s negatve and sgnfcant. Ths could ndcate that marrage ncreases the wage rate by sendng a sgnal to employers of future stablty and relablty n the workplace n the UK compared to Germany. However, the effect of chldren on the UK female wage s negatve and sgnfcant, where as for all other samples the returns are nsgnfcant. The UK female result s consstent wth employed mothers havng smaller work raduses relatve to women wthout chldren. Ths lmts the employment area and therefore the wage of employed mothers consstent wth a monopsony labour market (Polachek and Sebert, 1993, p.164). 9 Regressons are avalable on request from the authors. 13

14 The dummy varables for 1991 and 1993 are nsgnfcant for the German samples wth 1991 sgnfcant at the 5 per cent level for employed males n the UK. Conversely, the estmates for UK females are sgnfcant wth females earnng 6 per cent less n 1991 relatve to 1992 and 4 per cent more n Through decomposng the gender wage dfferentals usng the pooled method of Oaxaca and Ransom (1994) male overpayment, female underpayment and productvty dfferences can be dentfed. Table 2 presents the decompostons as part of the logarthmc wage dfferental, as a percentage of the wage dfferental and as a percentage of the male wage. (cf. table 2) Ths shows that the female underpayment (FU) term domnates the productvty gap (PD) and the male overpayment (MO) component of the wage dfferental, suggestng employer dscrmnaton aganst females s the domnant explanaton for the observed wage gap n both the Unted Kngdom and Germany. If ths term could be elmnated then the wage dfferental as a percentage of the male wage would be reduced to 6 per cent n the UK and 4 per cent n Germany. If male overpayment could be halted then vrtually no gender wage gap would exst. Whlst the panel regressons have gven us a general overvew of the German and UK labour markets, the next stage of the analyss s to observe changes n dscrmnaton by estmatng crosssectonal regressons for 1991 and To dfferentate between job and wage dscrmnaton a logt non-dscrmnatory model s used and the results of the decompostons for 1991 and 1993 are presented n 14

15 (cf. table 3) The results ndcate that job dscrmnaton (JD) and explaned job dfferences (JE) contrbute nothng to the gender wage dfferental n ether country. As a proporton of the wage dfferental, females n the UK and Germany became relatvely less productve between 1991 and 1993, wth the productvty gap (PD) ncreasng from 25 per cent to 34 per cent for UK women. The most strkng fndng from the cross-sectonal analyss s the dramatc declne n UK female underpayment (FU) term. As a percentage of the wage dfferental UK female underpayment falls from 48 per cent n 1991 to 18 per cent n The equvalent fgure for German females s a surprsng ncrease from 40 per cent to 45 per cent. The UK results could be nterpreted as a declne n employer dscrmnaton aganst women, but the sheer magntude of the fall over just three years ndcates that an alternatve explanaton s requred. One possblty s the change to the UK Sex Dscrmnaton Act n 1992 outlawng female dsmssal on the grounds of pregnancy, resultng n an ncrease n female wages. The fndng that male overpayment (MO) ncreases from 33 per cent to 55 per cent between 1991 and 1993 adds further support to ths dea. To see where the reducton n UK female underpayment s largest separate decompostons have been calculated for publc and prvate sector workers. From Table 4 t can be seen that German publc sector females are underpad less than ther UK counterparts n both 1991 and 1993, wth prvate sector females n both countres facng larger underpayments relatve to publc sector workers. The declne n the German publc sector s consstent wth the affrmatve acton polcy adopted n the early 1980s. In both countres gender dscrmnaton domnates the wage gap, wth t beng worse n the prvate than publc sector. The UK labour market s of more nterest here though snce female underpayment has declned rapdly n both the publc and prvate sectors, only for male overpayment to ncrease n the prvate sector. (cf. table 4) 15

16 V CONCLUSION The prncple ams of ths paper were to estmate gender wage dfferentals and gender dscrmnaton between Germany and the Unted Kngdom, usng newly avalable consstent data sets over the perod 1991 and The use of ths panel data also makes a comparson of the returns to human captal by gender across the countres possble. Usng ths more general approach allow dfferences between nsders and outsders n Germany and the UK to emerge, reflectng the relatve strength of the unon movement n Germany. The legslatve amendment to the UK Sex Dscrmnaton Act n 1992 was also controlled for n the ntal panel estmates. To test the robustness of our results crosssectonal estmatons were undertaken for the publc and prvate sectors so that job dscrmnaton and wage dscrmnaton could be dentfed. Ths also allowed the success of affrmatve acton polcy n the German publc sector to be evaluated. The gender wage dfferental was found to be larger n the UK than n Germany at 20 per cent of the male wage compared to 9 per cent n the perod 1991 to Decomposng the dfferental revealed that female underpayment was the domnant component of both labour markets, ndcatng a possble problem of employer dscrmnaton aganst females. The more detaled decomposton of ths paper over prevous studes gave estmates of dscrmnaton far larger than those calculated by Pac and Josh (1996), but consstent wth the fndngs of Harkness (1996) and Black et al (1999). Wth regard to cross-country comparsons our estmates for the UK are consstent wth those of Black et al (1999) at 20 per cent compared to 26 per cent n For the German labour market the dscrmnaton term of 8 per cent of the male wage s half as much as that calculated by Black et al (1999) for Our results are consstent wth the fndngs of the Unted Natons Report on gender n that the UK suffers from a greater problem of gender dscrmnaton than Germany. 16

17 The cross-sectonal analyss showed that gender wage dfferentals and gender dscrmnaton were declnng n both countres but that t was more rapd n the UK, consstent wth the fndngs of Zabalza and Tzannots (1985). The declne n the UK was largely due to a dramatc reducton n female wage underpayment n both the publc and prvate sector, and whle ths may be nterpreted as a reducton n employer dscrmnaton, the more lkely explanaton s the change to the SDA n 1992, outlawng the dsmssal of women on grounds of pregnancy. The panel estmates captured nsder-outsder power and job-specfc tranng wthn the labour market. The expected a pror result of nsders earnng more than outsders was found n both Germany and the Unted Kngdom, wth nsders n Germany havng greater power than those n the UK. Gven trade unon collectve barganng covered 90 per cent of the labour market n Germany compared wth 47 per cent n the UK durng ths perod, ths result s not surprsng. The cross-sectonal estmates ndcated that job dscrmnaton n Germany, consstent wth affrmatve acton legslaton n favour of women, dd not effect overall gender dscrmnaton n the country. Whlst t was not possble to drectly test the mpact of ths legslaton on the publc sector gven the data restrctons, the evdence suggested the polcy has worked. A wdenng of the wage gap would appear to act as a sgnal to hghly qualfed females to enter the publc sector for fnancal gan, a case borne out by the superor returns to educaton and experence by publc sector females. The certanty of more equtable pay structures and promotonal opportuntes would also act as an ncentve to fnd employment n the publc sector. Gender dscrmnaton s expected to declne further n both the UK and Germany as wage dfferentals contnue to narrow through both legslatve change and structural change to the labour market, favourng women over men. Wth a more centralsed labour market and a contnung 17

18 affrmatve acton polcy, Germany s stll expected to suffer less gender wage dfferences and dscrmnaton than the UK. The challenge to both countres though s the reducton of wage dfferences and dscrmnaton that females encounter n the prvate sector, a problem that may only be resolved through better legslatve enforcement. 18

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22 Table 1 Panel Wage Regressons for the UK and Germany, Unted Kngdom Germany Males Females Males Females Varable Coeffcent Std-err Coeffcent Std-err Coeffcent Std-err Coeffcent Std-err Educaton Experence Experence Outsder Insder Part-Tme Publc Marred Chldren Constant Sample Sze 4,598 4,780 6,984 4,938 R Lnwage Table 2 Gender Dscrmnaton for Germany and the Unted Kngdom, PD MO FU Country ~ * β ( X m X f ) X m ( ~ ~ * β m β ) X f ( ~ ~ * β β f ) ln W ln W Unted Kngdom % Wage Dfference % Male Wage Germany % Wage Dfference % Male Wage m f 22

23 Table 3 Decomposton of the Gender Wage Dfferental for the UK and German labour market: 1991 and 1993 (1) (2) (3) (4) (5) (6) (7) JE JD PD MO FU Wage Gap ~ ~ Sector/Year ( X )( p p$ ) ( X )( p$ p ) pm[ ~ * β ( Xm Xf )] pf [ Xm ( ~ m ~ * β β )] pf [ Xf ( ~ * β β ~ f )] UK 1991 β m m m f β m m f f Wage dfferental % male wage % wage dfferental Wage dfferental % male wage % wage dfferental Germany 1991 Wage dfferental 7.01E E % male wage % wage dfferental Wage dfferental % male wage % wage dfferental

24 Table 4 Gender Wage Dscrmnaton and Decomposton by Sector n the 1991 and 1993 German and Unted Kngdom Labour Markets Country/Year/Sector ~ * β ( X m X f ) X (~ ~ * β f m β ) X f ( ~ ~ * β β f ) ln( G mf + 1) 1991 Germany: Publc % Wage Dfference % Male Wage Germany: Prvate % Wage Dfference % Male Wage UK: Publc % Wage Dfference % Male Wage Prvate % Wage Dfference % Male Wage Germany: Publc % Wage Dfference % Male Wage Prvate % Wage Dfference % Male Wage UK: Publc % Wage Dfference % Male Wage Prvate % Wage Dfference % Male Wage