A note on the determinants of wage inequality between and within genders
The breakdown of the total wage inequality If the two samples of male and female workers are pooled, the overall wage inequality may be decomposed into two components, one measuring the wage inequality observed within the gender-specific samples and another one taking into account the wage inequality between the male and female samples. The wage equation for an individual k belonging to this pooled sample will be written as:
Expression (11.5) measures the total wage inequality observed in the pooled sample of male and female workers. Using well-known results on the decomposition of the variance by population subgroups, we may express the within gender specific groups variance Vwithin as
It may be observed that E in (11.8) measures the impact of human capital characteristics on the within gender specific groups inequality while F in (11.9) corresponds to the effect of unobserved variables on this within groups inequality. The between (gender specific) groups variance Vbelween will be expressed as
Notice that G measures the impact of human capital characteristics on the between groups variance, H that of the rates of return on these characteristics while K is an interaction term between these human capital characteristics and the rates of return on the same characteristics. Moreover, L measures the degree of interaction between rates of return on different human capital characteristics, M corresponds to the interaction between different human capital characteristics while N is a residual that expresses the interaction between human capital characteristics and rates of return on different characteristics.