Globalization and the Gender Wage Gap Remco H. Oostendorp There are several theoretical reasons why globalization will have a narrowing as well as a widening effect on the gender wage gap, but little is known about the actual impact, except for some country studies. This study contributes to the literature in three respects. First, it is a large cross-country study of the impact of globalization on the gender wage gap. Second, it employs the rarely used ILO October Inquiry database, which is the most far-ranging survey of wages around the world. Third, it focuses on the within-occupation gender wage gap, an alternative to the commonly used raw and residual wage gaps as a measure of the gender wage gap. This study finds that the occu- pational gender wage gap tends to decrease with increasing economic development, at least in richer countries, and to decrease with trade and foreign direct investment (FDI) in richer countries, but finds little evidence that trade and FDI also reduce the occu- pational gender wage gap in poorer countries. JEL Codes: F16, F21, J16, J31, J44, O15 Many studies have analyzed whether globalization has important distributional impacts, across poor and rich countries, across urban and rural regions, and across low- and high-skill workers. Much less attention has been paid to whether globalization affects male and female workers differently. Recent empirical studies from 61 countries indicate that the gender wage gap is still large, amounting to 23 percent in developed countries and 27 percent in devel- oping economies (World Bank 2001, pp. 55���57). Only about one-fifth of this gender gap in earnings can be explained by observed differences in worker and job characteristics, and therefore it is an important question whether globaliza- tion will reduce or increase this still significant gap. The literature suggests several reasons why globalization would have a narrow- ing effect on the gender wage gap. First, according to neoclassical theory, Remco Oostendorp is an associate professor at VU University Amsterdam, a research fellow at the Tinbergen Institute, a fellow of the Amsterdam Institute for International Development, and a research associate of the Centre for the Study of African Economies, Oxford University his email address is roostendorp@feweb.vu.nl. The author thanks participants at seminars at the World Bank in Washington, D.C., the World Bank country office in Jakarta, the Institute of Southeast Asian Studies in Singapore, and the University of Utrecht for useful comments. He is particularly grateful to Aart Kraay, Andy Mason, Nayantara Mukerji, Susan Razzaz, and Yana Rodgers for constructive comments and to the journal editor and five anonymous referees for helpful suggestions. A supplemental appendix to this article is available at http://wber.oxfordjournals.org/. THE WORLD BANK ECONOMIC REVIEW, VOL. 23, NO. 1, pp. 141���161 doi:10.1093/wber/lhn022 Advance Access Publication January 6, 2009 # The Author 2009. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org 141

globalization will lead to increasing competitive pressures, making it more costly for individuals and firms to discriminate (Becker 1971). Second, expanding trade will boost job opportunities, increasing the number of women being absorbed in export-oriented industries (Cagatay and Berik 1990 Wood 1991 Joekes 1995 Anker 1998 Standing 1999 Ozler 2000). If the greater demand for female labor increases women���s relative wages, the gender wage gap will decline.1 Third, insofar as trade spurs economic growth with increased investments in infrastructure and improved availability and quality of public services, gender disparities in human capital would tend to fall, and with them the gender wage gap (World Bank 2001). However, globalization may also worsen the gender wage gap. First, stan- dard trade theory predicts that trade will adversely affect the compensation paid to the relatively scarce factors of production in the economy. If female workers in developed economies have lower average skills than male workers do, then the wages of female workers will fall more than those of male workers as trade with developing economies increases. This skill effect would increase the gender wage gap. The opposite is true for developing economies��� their gender wage gap should decrease with increases in trade. Second, globali- zation through increasing competition may weaken the bargaining power of workers, especially of female workers if they are disproportionately employed in sectors increasingly competing on the basis of ���cheap��� labor (Seguino 2005). Third, there are complicated linkages between the traded sectors and other sectors in the market economy, as well as between the market economy and the unpaid household economy, where women are the main workers (Fontana and Wood 2000). For instance, if trade leads to more occupational segregation or less leisure time for female workers, women may be less motiv- ated to pursue a life-long career, thereby increasing the gender wage gap. Only a few country studies have looked at the impact of trade and foreign direct investment (FDI) on the gender wage gap, and most suggest that more trade and FDI reduce the gap (Fontana and Wood 2000 Garc����a-Cuellar �� 2000 Artecona and Cunningham 2002 Berik, van der Meulen Rodgers, and Zveglich 2004 Black and Brainerd 2004).2 The country studies look at the impact of trade and FDI on the overall gender wage gap (raw wage gap) or the unexplained gender wage gap (residual wage gap). This study contributes to this literature in three respects. First, it is a large cross-country study of the impact of globalization on the gender wage gap.3 Second, it employs the rarely used ILO October Inquiry database, the most far-ranging global survey of 1. However, if the increased employment for women is mostly low wage and low skill, the total gender wage gap could increase (Hunt 2002 Blau and Kahn 2003 Olivetti and Petrongolo 2006). 2. Insofar as globalization affects market structure, some country studies suggesting that deregulation, market power, and transition affect the gender wage gap are also relevant (Brainerd 2000 Black and Strahan 2001 Hellerstein, Neumark, and Troske 2002). 3. The move from country- or industry-specific analysis to cross-country analysis is useful because the impact may vary across country characteristics, such as level of economic development, and because the impact may extend beyond an individual industry, due to externalities and spillovers. 142 T H E WO R L D B A N K E CO N O M I C R E V I E W

wages with information on the gender wage gap in 161 narrowly defined occu- pations in more than 80 countries for 1983���99 (International Labour Organization various years). And third, it focuses on the within-occupation gender wage gap (occupational gender wage gap), which is analytically and empirically related to the commonly used raw and residual wage gaps. Section I introduces the ILO October Inquiry database and discusses the occupational gender wage gap as an alternative indicator of gender wage inequity. The occupational gender wage gap is analytically and empirically related to the commonly used raw wage gap and the residual wage gap. Section II discusses the extent to which theories about the impact of globaliza- tion on the gender wage gap are also relevant for the occupational gender wage gap and includes a descriptive analysis of the occupational gender wage gap around the world, particularly its relationship with economic development, trade, and FDI. Section III uses a regression framework to examine whether globalization reduces the occupational wage gap. I. T H E I L O O C T O B E R I N Q U I R Y A N D T H E O C C U P A T I O N A L G E N D E R WA G E G A P A S A N I N D I C A T O R O F G E N D E R WA G E I N E Q U I T Y The data for this study were derived from the ILO October Inquiry, which col- lects information on pay (wages, earnings, and hours of work) across detailed occupations at the four-digit International Standard Classification of Occupations (ISCO88) level. The scope of the ILO October Inquiry has been increasing since its inception in 1924, both in country coverage and in number of occupations included. In gender breakdown, the 1983���99 data are the most extensive, providing information on pay for men and women across 161 occu- pations and 83 countries. However, the number of occupations varies across years for each country, and most countries do not report for each year. The supplemental appendix provides a detailed description of the database (avail- able at http://wber.oxfordjournals.org/). With the ILO October Inquiry data, it is possible to look up the occu- pational gender wage gap���the female���male wage difference within an occu- pation for a given country and year. The ILO October Inquiry does not contain information on employment within occupations, and the data cannot be used to measure the average gender wage gap across workers or to estimate the impact of globalization on female and male employment.4 Before analyzing the occupational gender wage gap, the occupational wage gap must be shown to be a useful indicator of gender wage inequity, alongside 4. It has been suggested that sectoral employment weights from other data sources could be used to derive an aggregate gender wage gap. However, for many countries, there are not enough observations with female���male wage data across (even broad) sectors to get a good measure of the overall gender wage gap. Oostendorp 143