The Gender Wage Gap in Latin America and the Caribbean: A Deeper Dive

The gender wage gap in Latin America and the Caribbean (LAC) is a persistent problem. Working women in the region earn, on average, 70 cents for every dollar earned by men. But this simple statistic does not tell the whole story: it fails to capture the complexity of gender disparities in labor income.

Why is this relevant? 

The traditional way of measuring the gender wage gap only considers the wages of employed workers. This overlooks the fact that many people choose not to work, often due to factors like care responsibilities or lack of flexible work arrangements. This "selection bias" can significantly underestimate the true extent of the gender wage gap.

To get a more accurate picture, we need to consider the wages of both working and non-working men and women. In this blog post, we examine how the gender gap in LAC changes using cutting-edge statistical methods (based on the model proposed by Arellano and Bonhomme in 2017).

Analyzing the numbers

We used data from 16 countries in LAC to calculate the gender wage gap among full-time formal salaried workers, taking into account the decision to work and worker’s characteristics. 

We see that the wages for both women and men (shown by the blue lines in Figure 1) are higher than the wages estimated when considering people’s decision to work (the orange lines). 

This difference suggests that workers with lower earning potential often choose not to work. While this trend, known as positive selection, is seen in both men and women, it is more noticeable among women across all wage levels. 

Figure 1: Wages by gender. LAC circa 2020.

  

Combing the insights from both charts, it becomes clear that just comparing the wages of employed workers underestimates the wage gap, especially at the higher end of the wage distribution (the blue line in Figure 2). 

What we see is that the gender wage gap is larger than previously thought. When we account for the decision to work, the average gender wage gap in LAC jumps from 4.1% to 16.2%. This difference is particularly pronounced among high-income earners.

Figure 2: Gender Wage Gap by Income Levels. LAC circa 2020.     

         

               

              

 

 

We also find that the gap is not about skills. While women's qualifications often compare favorably to men's, they are still paid less for the same work. This suggests that gender differences in the rewards of labor market characteristics play a significant role in the gender wage gap.

Figure 3: Decomposition of the Gap Adjusted for Sample Selection. LAC circa 2020.         

_{Note: The effect of characteristics is the portion of the gap due to differences in observable labor market characteristics between genders. The effect of coefficients is the portion of the gap due to gender differences in how men and women are paid for those labor market characteristics (Machado and Mata, 2005).}

What can we do?

In LAC, reaching pay parity remains a challenge. To effectively close the earnings gap among those people who are working, we must first accurately identify its magnitude and understand its underlying drivers.

Legal reforms made in minimum wage policies have contributed to the observed relative equality among the lowest wage earners. Yet, the gap remains substantial among high-wage earners.

Narrowing the gap requires addressing occupational segregation and gender gap in promotions. This could be done by providing information on work opportunities, sector-specific technical skills, engaging role models in training and mentorship programs and adopting pay-transparency laws.

Better access to affordable and quality care facilities can help women manage both work and family responsibilities without giving up any pay, particularly in high-paying positions that often require a large number of hours and lack flexibility, which could be challenging, especially for mothers with several children.

The LACGIL within the Poverty and Equity Global Practice, works in partnership with units across the World Bank, aid agencies and donors, governments, non-governmental organizations, private sector firms, and academic researchers. This work has been funded in part by the World Bank Group's Umbrella Facility for Gender Equality (UFGE), a multi-donor trust fund administered by the World Bank to advance gender equality and women's empowerment through experimentation and knowledge creation to help governments and the private sector focus policy and programs on scalable solutions with sustainable outcomes. The UFGE is supported by generous contributions from Australia, Canada, Denmark, Finland, Germany, Iceland, Ireland, Latvia, the Netherlands, Norway, Spain, Sweden, Switzerland, United Kingdom, United States, the Bill and Melinda Gates Foundation, and the Wellspring Philanthropic Fund.

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