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Gender Wage Gap and Firm Market Power in Chile

Sanchez, Rafael and Finot, Javier and Villena, Mauricio G. (2019): Gender Wage Gap and Firm Market Power in Chile.

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Abstract

The main aim of this work is to explain the Chilean gender wage gap using a dynamic monopsony model to estimate labor supply elasticities at the firm level. To the best of our knowledge, our study is the first to measure monopsony power at the firm level using voluntary separations and the first to apply this methodology to estimate such elasticities for a middle-income country. Our results suggest that elasticities of labor supply to firms are rather small, which implies that firms have market power. We also found that Chilean men earn approximately 19% more than women as a result of the difference in labor supply elasticities by gender, ceteris paribus. Furthermore, we found that the magnitude of between-firm di¤erences in elasticities are more than twice the magnitude of within-firm differences, suggesting that the gender wage gap is driven more by structural factors that generate gender sorting to firms. Finally, we found that elasticities for a high-income country (United States) are 63% and 100% higher than those obtained for a middle-income country for men and women, respectively, suggesting higher labor market frictions in middle-income countries for men and even higher for women.

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