Equal Pay for Similar Work

TL;DR

This paper analyzes the effects of equal pay for similar work policies, showing that their impact on gender wage gaps depends on whether they are based on protected classes and the gender composition of the labor market.

Contribution

It provides a theoretical model and empirical evidence on how EPSW policies influence gender wage gaps and workforce segregation.

Findings

EPSW binding across protected classes can increase gender wage gaps.

Non-class-based EPSW can decrease gender wage gaps.

Workforce segregation by gender occurs under class-based EPSW.

Abstract

Equal pay laws increasingly require that workers doing "similar" work are paid equal wages within firm. We study such "equal pay for similar work" (EPSW) policies theoretically and test our model's predictions empirically using evidence from a 2009 Chilean EPSW. When EPSW only binds across protected class (e.g., no woman can be paid less than any similar man, and vice versa), firms segregate their workforce by gender. When there are more men than women in a labor market, EPSW increases the gender wage gap. By contrast, EPSW that is not based on protected class can decrease the gender wage gap.