This article first appeared in the spring 2002 issue of the Expert Witness.
When we estimate the potential income of a young female (without- or with-accident) who does not have a well-established career path, we rely on census data and usually present earnings for both males and females. As is well-known, men have, on average, earned more than women. A number of reasons have been offered for this, including: labour force discrimination, different occupational choices, differences in labour force participation trends, and so forth. However, it is also well-known that the average income earned by women has been increasing relative to that earned by men. In 1967, women’s earnings were approximately 58 percent of men’s earnings. By 1997, women’s earnings were approximately 73 percent of men’s earnings. But will this trend continue, and will the gender wage gap continue to close in the future?
A recent paper by Michael Shannon and Michael Kidd addresses the question of the size of the gender wage gap in the future.* Using recent Canadian data, they project future trends, based on current trends in educational attainment and labour force participation. They then use these predicted trends to estimate the wage gap from 2001-2031 using a statistical model. They find that the wage gap will continue to close, however a wage gap of approximately 22 percent will still exist in 2031.
In this article, I first examine current and projected trends in educational attainment and labour force participation – two factors influencing earnings. Then, I present Shannon and Kidd’s results regarding the projected gender wage gap. Finally, I consider the implications of their results for the estimation of the potential incomes of young females.
One factor that influences earnings is educational attainment. In recent years, female educational attainment has increased relative to that of males. To incorporate recent trends in educational attainment, Shannon and Kidd create an age-education pattern for both males and females. In 2000, it is found that individuals in the 25-29 year age category are better educated than individuals in the 55-59 year age group, and that this trend will continue into the future. For example, in 2000 approximately 2 percent of individuals (either males and females) in the 25-29 year age category have less than a high school education, compared to approximately 23 percent in the 60-64 year age category. As the individuals in the 25-29 year category age, the pattern of educational attainment is carried through into future years. The number of individuals in the 55-59 year age category in 2030 (individuals who were in the 25-29 year age category in 2000) that have less than a high school education will decline to approximately 2 percent, and we see higher education levels for all age groups in the future.**
In addition, female university enrollment has increased. In fact, women now account for the majority of university students, and females are entering fields that were typically male-dominated (such as engineering, applied sciences, and mathematics).
For the purposes of their calculations, Shannon and Kidd make the conservative assumption that educational enrollments will remain constant into the future. In 2000, approximately 22 percent of women (aged 25-64) had a high school diploma, 32 percent had a post-secondary diploma, 14 percent had a bachelor’s degree, and 5 percent had a graduate degree. By 2031 it is predicted that approximately 17 percent of women will have a high school diploma, 35 percent will have a post-secondary diploma, 18 percent will have a bachelor’s degree, and 8 percent will have a graduate degree.
Male educational attainment, as a comparison, is predicted to remain relatively unchanged over the 30 year period considered. In 2000, approximately 19 percent of males had a high school diploma, 33 percent had a post-secondary diploma, 13 percent had a bachelor’s degree, and 8 percent had a graduate degree. By 2031 it is predicted that approximately 20 percent of men will have a high school diploma, 36 percent will have a post-secondary diploma, 14 percent will have a bachelor’s degree, and 7 percent will have a graduate degree.
These results indicate that women are “catching up” to males in the percentage that obtain higher levels of education. Since higher education tends to lead to higher wages, the increased educational attainment of women, and the constant attainment of males, contributes to a closing of the gender wage gap.
Labour force participation
Another factor that influences women’s earnings is that they tend to take time away from the labour force (either to withdraw entirely or to reduce hours to part-time status) for a period of time – as is common for women who choose to have families. Thus, women, on average, bring less experience to their jobs, which means they tend to have lower incomes at any given age.
Labour force participation rates have shown steady growth over the last three decades, and many experts anticipate that they will continue to rise. Moreover, relying upon historical participation rates by age cohort may be misleading as many women are delaying the onset of pregnancy. In 1986, on average, women were approximately 25 years old when their first child was born. By 1996, women were approximately 27 years old when their first child was born. During the early years between finishing school and starting a family, women are tending to work full-time in their careers. It is in the early years of one’s career that substantial wage growth usually occurs. By delaying starting a family, women can be more flexible in career decisions such as traveling, relocation, overtime, etc. Thus, women may benefit from the higher wage increases earlier on in their careers. Also, they may be able to exit the labour force at a time that will have less impact on their careers, and their earning potential.
Shannon and Kidd predict that women will have increased their number of years of work experience by 2031. A summary of the actual (1994 and 2001) and estimated (2001 and 2031) years of work experience is outlined in Table 1.
Two important predictions are made in Table 1. First the number of years of experience obtained by males at each age group will not change significantly over the next 30 years. Whereas males 45-49 had worked an average of 25.6 years in 1994, for example, they are predicted to have worked 25.5 years in 2031. Similarly, the work experience of 55-59 year-old males is predicted to change by only 0.2 years – from 36.6 to 36.8 years over the same time period.
Second, whereas the work experience of young females is predicted to remain relatively unchanged, older women are predicted to obtain more years of lifetime employment. For example, while the work experience of 35-39 year-old females is predicted to change by 0.1 years between 1994 and 2031 – from 12.5 to 12.4 – the work experience of 55-59 year-olds is predicted to increase by 2.3 years – from 23.9 to 26.2. And the experience of 60-64 year-olds is predicted to increase by 5.1 years.
Shannon and Kidd concluded that these changes will produce only a slight narrowing of the wage gap between men and women – and then only in older age groups. But their results did not allow for changes in number of hours worked in a lifetime. It is also possible that some wage gains could be obtained by women if they were to work more full-time hours, and less part-time, and if they were to increase their full-time hours. In 1997, for example, women working full-time, worked 39 hours per week on average, whereas men worked 43 hours.
Shannon and Kidd incorporate the trends summarized above to determine the future wage gap. Their results are shown in Table 2 below.
There, it is projected that the gender wage gap will decline in the future. On average, it is projected that the difference between incomes for males and females in the 25-44 year age category will fall to approximately 17 percent by 2031. That is, full-time, full-year wages for females within the 25-44 year age category are projected to be approximately 83 percent of their male counterparts. By comparison, women in the 45-64 year age group will earn approximately 71 percent of their male counterparts’ incomes.
Conclusions & implications
Shannon and Kidd’s results imply that the gender wage gap will continue to close, but a gap of approximately 22 percent will still exist in 2031. Increasing female labour force participation and educational attainment, coupled with the relative stability of the male labour force participation and education attainment contribute to the wage gap closure.
In comparison to the wage gap closure from 1967 to 1997 (42 percent to 27 percent, or 15 percentage points), the results for the next three decades suggest that convergence of the gender wage gap will slow from 2001 to 2031 (29 percent to 22 percent, or 7 percentage points). The authors’ findings also suggest that changes in the wage gap for older individuals (within the 45-64 year age group) will produce the greatest convergence (43 percent to 29 percent, or 14 percentage points).
Part of the projected wage gap in 2031 is due to the differences in the labour market characteristics addressed by Shannon and Kidd. Since women tend, on average, to work fewer years over their work-life; work fewer hours per week; and are more likely to withdraw from the labour force or reduce their hours to part-time for the purposes of raising a family, their wages will, on average, be less than those of their male counterparts. However, these characteristics historically have accounted for only half of the wage gap. The portion of the wage gap that cannot be explained by labour market characteristics is generally attributed to discrimination and to differences in preferences between men and women. For example, women tend to be the primary caregivers. Thus, they may choose to work in lower-paying jobs that have more flexibility regarding sick days and hours worked, or within positions that are easily entered and exited. These are factors which also contribute to the wage gap, but are not easily captured using traditional statistical methods, such as those used by Shannon and Kidd.
What do these findings imply for using male earnings when predicting the potential income for young females? It seems reasonable to conclude that the findings suggest that historical average income figures for women underestimate the future potential income of an average young woman today. This is because historical income figures reflect women who (on average) had a much different labour force experience than today’s average young woman will experience, and that young women in the future will experience. It seems that the “reality” for today’s average woman lies somewhere between historical figures for males and females. It appears that even young women who will follow a “traditional” average female career path will earn more than the average women represented by historical data since today’s females are acquiring higher education levels and displaying a greater labour force attachment by participating full-time in the labour force longer.
Thus, it may be appropriate to use average earnings for males to predict the future potential income of an average young female, and then to apply contingencies to reflect the possibility of labour force absences and part-time employment. I emphasize, however, that this approach still carries difficulties. For example, women tend to enter different careers than men, even when they are working full-time. That is, there is still a tendency for occupations to be “male-dominated” or “female-dominated”, and the female-dominated occupations tend to pay less, even considering the same level of educational attainment between men and women. Thus, using male earnings data for any given level of education (considering all occupations) may overstate the potential life-time earnings of a young female.
* Shannon, Michael and Michael Kidd, 2001, “Projecting the Trend in Canadian Gender Wage Gap 2001-2031”, Canadian Public Policy. Vol. XXVII, No. 4, 447-467. [back to text of article]
** Shannon and Kidd also consider a scenario in which enrolment increases in the future at the same rate it had increased in the prior 12 years. For the purposes of this article, I focus on the more conservative scenario in which they assume that there is a one-time jump in enrolment from 1994-2000, and then enrolment remains constant over the 2001-2031 period. [back to text of article]