The Age Earnings Profiles of Women in Australia, Great Britain and the United States.
2. Estimation of Earnings Functions of Women in Three Countries 1 The Basic Equation.
In this section we shall present the results of the estimation of earnings equations
for full-time women in the three countries. (5) We shall use these equations to
decompose the differences in the relative earnings of women by age into that part which
is attributable to differences between the three countries in endowments and that part
which is attributable to differences in coefficients. As already described, the aggregate
earnings profile of full-time working women in the US continued to rise for longer than
in the other two countries. This result is the same as the male result suggesting that the
underlying factors affecting the male age earnings profile in the US also influenced the
female full-time age earnings profile (®).
We have estimated earnings equations using the same preferred functional form of
experience as for men, that is we have included experience in both quadratic and
exponential terms. We have also adopted the same estimation procedure. Firstly we have estimated the 5 coefficient in the variable X, equal to (l-exp(-5*experience)), by non
linear least squares and imposed this value in ordinary least squares regressions using a
wider range of variables. The variables included are the same for women as for men and
the full definitions are presented in Appendix A. There is one additional variable included
here for women which was excluded from the male equations. We have included a
dummy variable for the presence in the household of children under the age of eighteen.
Earlier work has found that the presence of children had a significant and negative effect
on female earnings but not on male earnings.^)
The measure of experience we have used here is potential experience, that is age
minus the age on leaving full-time schooling. This measure has a number of limitations
which have been discussed in relation to men but it has particular limitations when used
as a measure of women's actual experience in the workforce. Women typically do not
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employment during periods of child raising. Their potential experience therefore
overstates their actual working experience. As most men participate in paid employment,
potential experience is a more accurate measure of their actual working experience than it
is for women and a comparison of the returns to experience for men and women based
on potential experience would be expected to overstate the differences. In the next
chapter we shall suggest some methods by which we hope to make more accurate
comparisons between men and women, but here, where we are comparing results only
for women, we shall use the potential experience measure. It is necessary therefore, for
us to assume that the relationship between actual and potential workforce experience for
women is similar in the three countries.
Table 7.1 presents our results for the estimation of earnings equations using our
basic model. The constant term measures the earnings of a single unqualified woman
with no experience living in an urban location. There are some similarities with the
results presented for a similar equation for men (see Table 4.3 chapter 4). The more
educated women earned more than the less educated and those living in rural areas earned
less than those in urban areas. The estimated coefficients show that female Australian
university graduates with no experience earned more than double that of an unqualified
woman while in the US and Great Britain the differential was respectively 90 and 73 per
cent. Rural residence reduced weekly earnings by about 13 per cent in the US compared
with 8 per cent in Australia and 4 per cent in Great Britain. As already discussed with
respect to men, the smaller effect of rural residence in Great Britain than in the other
countries may reflect differences in definitions and in the geography of the countries.
Marital status had different implications for female earnings than for male earnings.
The positive and significant effect of marriage found in the male equations was not
apparent for women. In none of the three countries did married women earn significantly
more than single women. In Australia, widowed, separated and divorced women earned
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have a significant effect on weekly earnings. The presence of children under the age of
18 lowered weekly earnings in each country, with the strongest negative effect being in
Australia. So looking at the results of the regressions for the three countries for
education, marital status and family variables and location, they are broadly similar in
qualitative terms.
The experience variables also had qualitatively similar coefficients for Australia and
the United States. Taking first the general quadratic and exponential experience terms,
each of these had the same sign and were of roughly similar magnitudes. In combination
they produced an experience profile that turned down after about 20 years of experience
but then started to grow again, after 37 years of experience for the United States and after
45 years of experience for Australia. This latter result of an increase in the returns to
experience at the very end of working life is difficult to explain in terms of human capital
theory. For Great Britain the pattern on the signs of the individual coefficients on
experience and the zero coefficient on the experience squared term produced a flat
experience earnings profile after about twenty years o f experience. There was no period
of negative growth in earnings with additional experience as in the other two countries.
The initial returns to experience were in general higher for the unqualified group
than for any other education group. This was not so for Great Britain where the point
estimates on the coefficients for both the high school and post secondary groups
suggested that the returns to experience were higher for these groups than for the
unqualified. It would be unwise to make too much o f these results however, as the F test
for the joint significance of the education by experience coefficients was unable to reject
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Table 7.1
Weekly Earnings of Full-time Women aged 16-64 using Potential
experience, Australia, Great Britain, the United States, 1981.
Dependent Variable = In Weekly Earnings
Australia Great Britain United States
Intercept (a) 4.3736 3.7483 4.5084 (132.73**) (87.94**) (46.53**) High 0.2875 0.0439 0.3334 (8.37**) (0.88) (3.30**) Post secondary 0.5148 0.2952 0.5434 (12.91**) (4.86**) (5.04**) Graduate 1.0224 0.7306 0.9019 (25.19**) (6.71**) (8.59**) X 1.248 0.6083 1.0298 (20.22**) (8.48**) (7.78**) Experience -0.0182 0.0002 -0.0141 (-5.82**) (0.07) (-3.02**) Experience 2 0.0002 0.0 0.0002 (3.42**) (-0.57) (2.08**) High*X -0.1613 0.1259 -0.1447 (-3.85**) (2.15**) (-1.32) Postsec*X -0.3186 0.0412 -0.2229 (-6.59**) (0.56) (-1.85) Graduate*X -0.5394 -0.1366 -0.3517 (-10.52**) (-0.96) (-2.99**) Married -0.0135 0.0057 0.0274 (-1.14) (0.32) (1.43) Widowed, separated, 0.0408 0.0263 0.0184 divorced (2.44**) (0.94) (0.82) Rural -0.077 -0.0362 -0.1289 (-4.81**) (-2.64**) (-9.27**) Child -0.1293 -0.0922 -0.1153 (-10.74**) (-4.67**) (-7.62**) R2 0.39 0.28 0.19 F 275.28** 69.50** 92.36**
Breusch-Pagan test for heteroskedasticity
NR2 - % ^ 6.11 12.87 0.53
F test for joint significance
of education*experience terms 42.79** 2.34 3.96**
Notes: t statistics in brackets. Significant test statistics at the 5 per cent level are indicated by a * and those significant at the 1 per cent level by **.