Sex, Wages, and Productivity: An Empirical Analysis of Israeli Firm-Level Data

INTERNATIONAL ECONOMIC REVIEW
Vol. 40, No. 1, February 1999
SEX, WAGES, AND PRODUCTIVITY: AN EMPIRICAL ANALYSIS

OF ISRAELI FIRM-LEVEL DATA*
BY JUDITH K. HELLERSTEIN
AND
DAVID NEUMARK1
Uni ersity of Maryland and N.B.E.R., U.S.A.

Michigan State Uni ersity and N.B.E.R., U.S.A.
Sex discrimination in labor markets may generate a wage gap between men
and women that exceeds any gap in marginal productivity. We test for this type
of discrimination using unique firm-level data on manufacturing firms in Israel.
There is a statistically significant negative association between wages and the
proportion of a firms workforce that is female. However, there is also a
statistically significant negative association between marginal productivity and
the proportion of females. The difference between the wage and productivity
gaps is small relative to wage-regression estimates of wage discrimination, and
is not statistically significant, which is most consistent with no discrimination.
1.
INTRODUCTION
Nearly all empirical research on sex discrimination in wages focuses on estimates

of wage regressions using individual-level data. A negative estimated wage differential between women and men, after including proxies for productivity and other
influences on the wage structure, is often interpreted as evidence of sex discrimination, and the magnitude of the differential as measuring the degree of discrimination. The inference that the wage gap between the sexes exceeds the productivity gap
is consistent with the form of discrimination in Beckers 1971. original model of
employer discrimination.
The variables entered into the typical wage regression, however, are not direct
measures of productivity. They therefore may not capture all sex-related differences
in productivity, in which case the residual sex gap in wages need not reflect
discrimination Becker 1985.. In the absence of data on sex, wages, and productivity,
these alternative interpretations of typical wage regression results are empirically
indistinguishable.
* Manuscript submitted March 1996; revised May 1997.
Email: hellerst@econ.umd.edu; neumarkd@pilot.msu.edu

1
We are grateful to Josh Angrist, Eli Berman, Arie Bregman, Rachel Friedberg, Claudia Goldin,
Zvi Griliches, Daniel Hamermesh, Dale Jorgenson, Lawrence Katz, Jonathan Leonard, Jacob
Mincer, Haim Regev and participants at numerous seminars for helpful discussions, and to Eli
Berman for suggesting the use of these data to study sex discrimination. We thank Haim Regev and
the Central Bureau of Statistics for providing the data, Yona Rubinstein for assistance with the
Income Survey, and the Central Bureau of Statistics, Falk Institute, and NBER for help with data,
computing, and facilities. We gratefully acknowledge financial support from the Maurice Falk
Institute, the Bradley Foundation, and BSF Grant 88-00480.
95
96
HELLERSTEIN AND NEUMARK
In this paper we take a significantly different approach to studying sex discrimination. We use a unique firm-level data set on manufacturing firms in Israel that
contains information on the sex composition of firms workforces, average wages
paid by the firm, and variables required to estimate production functions. Given a
production function specification, we can use these data to estimate marginal
productivity differentials between male and female labor, and test whether there is a
wage gap between women and men that is larger than any productivity gap, again, as
in Beckers model of employer discrimination.
Not surprisingly, there is a statistically significant negative association between
wages and the proportion of a firms workforce that is female. We also find,
however, a statistically significant negative association between marginal productivity
and the proportion of females. The estimates suggest that the wage gap is larger
than the productivity gap. But the difference between the wage and productivity gaps
is small two to eight percentage points.. Furthermore, there is no statistically
significant evidence that the sex gap in wages exceeds the productivity gap. At most,
the results are consistent with sex discrimination in wages that is much smaller than
what might be inferred from standard wage regressions.
These firm-level results do not rule out discrimination against women in hiring or
promotion. In particular, in the crowding model Bergmann 1974., women are
restricted to a subset of firms, industries, or occupations, which may result in an
outward shift of the labor supply curve in the sectors into which women crowd.
Because this would result in higher employment in these sectors, both the marginal
product of labor and wages in these sectors would be reduced. Our evidence of lower
wages and lower marginal productivity of women is therefore consistent with this
model. However, in individual-level earnings data, we find that the sex difference in
wages is not reduced by controlling for the proportion of females in the industry or
occupation, which is inconsistent with the crowding model, at least at the level of
industries and occupations. Although we do not have comparable individual-level
productivity data, the failure to find evidence consistent with crowding effects on
wages is sufficient to discount this explanation.
2.
PREVIOUS RESEARCH
While nearly all existing empirical studies of sex discrimination use the wage
regression approach, there are a few studies that attempt to estimate productivity
differentials and compare them to wage differentials. Leonard 1984. examines the
impact on productivity in the U.S.A. of affirmative action legislation by using an
aggregate production function to estimate changes over time in marginal productivity differentials between whites and nonwhites and between women and men. In
contrast, we jointly estimate a wage equation and production function, which permits
a test of the equality of wage and productivity differentials. More importantly, we
use firm-level data, whereas Leonard 1984. used data on inputs and output
aggregated to the state-by-industry level. Cox and Nye 1989. study the nineteenthcentury French textile industry, using firm-level data to estimate relative marginal
products, which are then contrasted with data on relative wages.
SEX, WAGES, AND PRODUCTIVITY
97
A handful of other papers use a similar approach but do not estimate production
functions. Foster and Rosenzweig 1993., Goldin 1986., and Rees and Shultz 1970.
compare piece-rate and time-rate earnings of men and women. Holzer 1990. uses
data on wages and employers subjective evaluations of worker productivity. Abowd
et al. forthcoming. study data on French workers matched to firms, looking at the
relationship between wage levels and levels of productivity and profitability, although they do not explicitly look at wage and productivity differences related to sex
or other demographic characteristics.
3.
A STRUCTURAL PRODUCTION FUNCTION APPROACH
3 A. Producti ity Differentials by Sex. Our paper does not explore numerous
issues with respect to specification and estimation of production functions. Analyses
of these issues using the same data that we utilize have been performed by Bregman
et al. 1991, 1992., Griliches and Regev 1995., and Kondor 1991.. Instead, we adopt
a simple production structure thatgiven the data available to uspermits us to
draw inferences regarding sex differences in marginal productivity and wages, and to
address potential biases or inconsistencies in our estimates in a tractable manner.
As explained in Section 4 below, the data set we use contains information on
values of output, physical capital, materials, R& D expenditures, and labor in three
occupational categories: engineers, technicians, and all other workers. We label this
latter category of workers unskilled. Measures of each of these variables were
made available to us in per-worker-year terms only, to help preserve the confidentiality of the firms in the survey.2 Because of this data limitation, we must assume
constant returns to scale.3 Specifically, we assume a Cobb-Douglas production
function
1.
Y s AK X R QL .
1y y y
where K is capital, X is materials, R is R& D services, and QL is a labor quality

aggregate defined over occupations and men and women.
Ideally, with the three types of workers available in the data set denoted by the
subscripts U, E, and T, for unskilled workers, engineers, and technicians ., the labor
quality aggregate would be
2.
QLs MU q E ME q T MT q U FU q E FE q T FT ,
where ME is the number of male engineers, FE the number of female engineers,

etc.4 The i and i coefficients reflect labor quality differentials across sexes and
2
The divisor is worker-years computed from firm-level data on hours worked, divided by hours in
a standard work year.
3
We do, however, have firm-level information on employment broken into four broad size
categories, which is used in the production function estimation.
4
A sensible alternative to this functional form for the quality of labor would be to treat different
occupations as separate multiplicative inputs in the production function. Many firms in our sample,
however, have no engineers or technicians.
98
occupations, which, given our assumption about the functional form of the production function, correspond to both average and marginal productivity differentials.
Because of data limitations, we have to simplify this expression. For each firm we
know the proportion of the workforce in each occupation, but we do not have the
occupational distribution broken down by sex. Thus, we assume that the proportion
of workers in each occupation is the same for men and women; we denote the
proportion of women in the firm and in each occupation. as W.5 Because of this
limitation we do not estimate distinct labor quality differentials associated with
women for each occupation. We instead estimate a single differential associated with
sex, which we denote ; this restriction on the s implies that U s , E s E ,
and T s T . The restriction of a constant proportion of females in each
occupation implies that we know only the total number of workers in each occupation, and the proportion of females, so that we have to reformulate equation 2. as
3.
QLs MU q FU . q y 1 . MU q FU . W
q E ME q FE . q E y 1 . ME q FE . W
q T MT q FT . q T y 1 . MT q FT . W.
Finally, letting U, E, and T denote the proportions of unskilled workers, technicians, and engineers among the firms workers, and L the number of workers, QL
can be rewritten as
4.
QLs L 1 q y 1 . W . 1 q E y 1 . Eq T y 1 . T . .
The production function then becomes
5.
Y s A K . X . R .
L 1 q y 1. W .
1 q E y 1 . Eq T y 1 . T . .
1y y y
Defining inputs and outputs in per-worker terms, and taking natural logs, we get
6.
ln YrL . s A q ln KrL . q ln XrL . q ln RrL .

q 1 y y y .
ln w 1 q y 1 . W x 1 q E y 1 . Eq T y 1 . T
..
Equation 3. then shows that the marginal product of each type of labor is
proportional to the marginal product of male unskilled labor MU ., by a factor of
proportionality that is equal to the product of the relative labor quality of different
sexes and occupations. For example, the marginal product of FE is
7.
5
Yr FE s Yr ME s E Yr MU .
Below, we consider procedures to relax this assumption see Section 6B and columns 1. 5. of
Table 2..
99
This same argument shows that is the marginal product of women relative to that
of men.
We also allow output per worker to vary systematically with industry, firm size, the
ownership structure of firms, the location of firms in development areas, and the age
of firms establishment year.. The industry dummy variables may capture labor
quality differentials, or variation in the payment of efficiency wages across industries. The firm size variables relax the constant-returns-to-scale restriction, while the
ownership, age, and location variables may capture other sources of productivity
differentials. Firms in developing areas are often subsidized, and may therefore
operate inefficiently. . 6
The Greek letters in equation 6. are the parameters to be estimated. We do this
by appending an error term and estimating the equation by nonlinear least squares.7
The parameter of most interest is ; - 1 implies that women are less productive
than men, and vice versa.
A profit-maximizing, wage-taking firm will hire the number of workers in each
occupation and sex category that equates that category of labors marginal product
with its wage, while a cost-minimizing, wage-taking firm will hire until the ratios of
marginal products equal the wage ratios. Thus, under either assumption, estimates
of can be meaningfully compared with estimated wage differentials by sex to test
for sex discrimination. Because many of the firms in our sample are in the public
sector, union owned, or government subsidized, cost minimization may be a better
characterization of their behavior than is profit maximization; for example, such
firms may not produce the profit-maximizing level of output, but incentives still exist
to produce output at minimum cost. For this reason, we focus on tests of the equality
Equation 5. suggests that we can interpret the quality of labor term not as representing the
sum of six types of labor inputs, but rather the sum of three types of labor inputs defined only by
occupation., each of which is affected proportionally by either a function of the proportion of
females W . or some other unobserved variable correlated with W, such as technology or hours
differences between men and women. Although we cannot account for all unobservables, in the
empirical analysis we find that our results are insensitive to the inclusion of these firm-level controls
which should capture at least some variation in technologyand to adjustments for sex differences in hours. Also, as we argue below, such unobserved factors are much less likely to bias
estimates of the difference between the sex gap in productivity and wages, which is the magnitude in
which we are most interested.
7
We do not attempt to correct the estimates for the potential endogeneity of input choices.
Possible instruments include input prices or lagged values of inputs. However, we do not have any
information on regional variation in input prices, nor did we have available to us panel data on firm
inputs and output from the Industrial Survey described below., from which we could extract lagged
input values.
We can, however, speculate as to the probable effects of any endogeneity bias on findings with
respect to sex discrimination. The input that is most likely to be correlated with output is materials.
Materials is negatively correlated with the proportion of females in the plant. Because the estimated
coefficient on materials is likely to be upward biased because of endogeneity, the estimate of the
relative marginal productivity of women. is also likely to be upward biased. Thus, correcting for
endogeneity would only lower the estimate of , making the data even less consistent with
discrimination against women than are the results we report below.
100
of ratios of wages to ratios of marginal products, rather than tests of the equality of
levels of wages and marginal products.
An obvious issue that arises in estimating the parameters of equation 6. and the
wage equation below is the source of the variation in the proportion of females.
Under the null hypothesis of profit maximization or cost minimization, employers
are indifferent between men and women, so this variation can be viewed as random.
If instead employers exhibit taste discrimination as in Beckers original model, and if
i. there is variation in discriminatory tastes, and ii. these tastes concern the relative
number of men and women in the firm, then variation in the proportion of females
is exogenously driven by employers discriminatory tastes.8
3 B. Wage Differentials by Sex. The compensation measure available in our data
set is total labor costs per worker-year in each firm; we adopt the shorthand of
calling this the average wage. The average wage can be written in a manner
analogous to the labor quality expression used above, that is,
8.
w s wMU MUrL . q wME MErL . q wMT MTrL .

q wFU FUrL . q wFE FErL . q wFT FTrL . ,
where L is total labor input, w is the average wage, and wi j denotes the average
wage paid to workers of sex i in occupation j.
Paralleling our production function specification, we assume that any wage gap
between men and women is the same across occupations, in which case equation 8.
can be rewritten as
9.
w s wMU MUrL . q wME MErL . q wMT MTrL .

q wMU FUrL . q wME FErL . q wMT FTrL . .9
In this case an employers utility function is written, for example, as

Us y d W ,
where is profits, and d is the disutility associated with the relative number of female employees
similar to the discrimination coefficient in Becker, 1971.. In this case, employers with stronger
discriminatory tastes hire a lower proportion of female employees, but employers generally hire both
men and women see Neumark 1988..
9
Equation 9. can be interpreted as the firm-level average of the following individual-level wage
equation for the firms employees:
wi s wM U Ui q wM E Ei q wM T Ti q y 1 . w wM U Ui Fi q wM E Ei Fi q wM T Ti Fi x ,
where Ui , Ei , Ti , and Fi are dummy variables for unskilled workers, engineers, technicians, and
women, and the wi j are parameters.
101
Using W as the proportion of females in the workforce and in each occupation.,

we rearrange equation 9., take logs and obtain,
10.
ln w . s ln wMU . q ln 1 q y 1 . W .
q ln 1 q E y 1 . Eq T y 1 . T . ,10
where, e.g., E s wMErwMU , and measures the sex differential in wages.

The constancy of the wage equation parameters including the intercept. across
firms reflects an assumption that all firms are price takers in a single competitive
labor market. This implies that the wages of workers of each occupation and sex do
not vary across firms. In such a market, wage differences by sex and occupation.
may arise because of productivity differentials or discrimination but not because of
monopsony power.. In the empirical analysis, we also consider the possibility that
firms are price takers in labor markets specific to industries, ownership structure,
firm size, location of firms in development areas, and firms of different ages i.e., we
allow variables capturing these characteristics of firms to enter the wage equation as
well as the production function.. In this case, as long as segmentation of markets
along these dimensions leads to proportional variation in wages across occupations,
then the equation can be augmented by adding these variables linearly. We also
allow for the possibility that productive inputs are related to wages because of
unobserved characteristics of workers that are related to these inputs perhaps via
complementarity.. One reason that unobserved characteristics of workers may be
quite important is that, as described in Section 4 below, the occupational breakdown
of firms workforces is not very detailed.
In equation 10., the Greek letters measure the log wage differentials associated
with sex and occupation. We can estimate these differentials using nonlinear least
squares, and compare them with the marginal productivity differentials. We can test
whether the sex gap in wages exceeds any productivity gap by testing whether
- .11
4.
THE DATA
The data are extracted from a larger data set constructed by Israels Central
Bureau of Statistics CBS., documented in Regev 1991.. The data in our final
10
Equation 10. is not a behavioral equation, but simply expresses the average wage of the firm in
terms of the wages of various types of workers, appropriately weighted. The error term that we
append could reflect omitted characteristics of workers, variation across firms in wages paid to
different types of workers, omitted variables that affect productivity and wages, or ex post realizations that lead the firms wage level to differ from the appropriately weighted average of market
wages.
11
In the course of this research we discovered a paper on the production and cost structure in
Israeli industry by Bregman et al. 1992. using 19791983 data similar to those we use in this paper.
They report some tangential results relating to sex differentials in wages and productivity, but their
estimates are not based on firm-level data, and they do not incorporate the proportion of females
into the production function in a way that generates estimates of sex differences in marginal
productivity.
102
sample of 998 firms come mainly from two sources: the Industrial Survey of 1988,
and a supplemental 1989 Survey of the Structure of Labor Force in Industry, which
covers the labor force of each firm as of January 1989. While the Industrial Survey
has been carried out in many years, the labor survey was conducted only once, so we
are limited to a cross-sectional analysis.
The 1988 Industrial Survey includes cumulative measures for the calendar year of
output and materials in current dollars, capital and R& D services,12 and total labor
costs. These measures were converted into per worker-year terms before they were
made available to us, using data on number of employees and hours worked. About
two-thirds of the firms reported all of the raw monthly data consistently, and the
CBS imputed these data for the remainder of the firms; it is not possible to identify
the firms for which this imputation was performed.
Other general characteristics of the firm are also available, including: number of
employees four categories.; location in an area targeted by the government for
development; establishment year four intervals.; ownership sector publicly traded,
Histadrut union owned., public, private.; and broad industry groupings food;
electronics; textile, clothing, and leather; light industries; chemicals and minerals;
metal and machinery; paper..
The Survey of the Structure of Labor Force collected data on the broad makeup
of the firms workforces. These data cover all employees and owners, including
part-time workers and temporarily absent workers. For each firm, we know the
proportion of female workers,13 and the proportion of workers in four broad
occupation categories: engineers, technicians, academicians, and unskilled
workers.14 On average, about 90 percent of workers fall into this latter category.
Descriptive statistics are reported in Appendix Table A1.
Another limitation of the Survey of the Structure of Labor Force is that the data
are provided in per-worker not worker-year. terms. Thus, we do not know the
12
The construction of these service measures is fully explained in Regev 1991. and the other
papers mentioned above that use these data. The R& D variable is a service measure that is
constructed in the same way as the capital service measure, using the depreciated flows of past
R& D expenditures.
13
We use no observations for which the proportion of females in the firm was imputed by the
Central Bureau of Statistics.
14
Engineers include all workers with an academic education in engineering, sciences, computer
science, medicine, and pharmaceutics. Technicians are defined as technicians, practical engineers,
and computer workers who completed a recognized post-secondary school. Academicians are those
workers with a nonscientific academic education typically with a bachelors degree.. Because this
last group is defined by educational attainment rather than by occupation, and because the
estimation results indicated that the wages and productivity of academicians are not different from
the remainder of workers in the unskilled category, we have folded academicians into this latter
category. The aggregate unskilled category therefore may well contain some workers who would
otherwise be considered skilled white-collar workers for instance, managers and lawyers., and
skilled blue-collar workers.
To gain some idea as to the composition of this latter category, we looked at data on
manufacturing workers in the 1988 Israel Income Survey, a CPS-type data set. In this file, 5.4
percent of workers were engineers as defined in the firm-level data. and 8.0 percent were
technicians. 73.3 percent were blue-collar workers or unskilled white-collar workers. The remaining
13.3 percent were managers, supervisors, lawyers, etc.
103
proportion of worker-years worked by women, but rather the proportion of workers

who are women. If women work fewer hours per year than men, then the proportion
of female employees overstates the proportion of the labor input supplied by women.
In Section 6, we attempt to gauge the empirical significance of this, and other,
limitations of the data.
5.
COMPARABILITY TO THE U.S.A.
Publicly available large samples with firm-level data such as these have been
unavailable for the U.S.A. Data on the standard ingredients of production functions
are available in the Census of Manufacturers as well as in the American Survey of
Manufacturers . for U.S. firms. But the Census of Manufacturers only provides
breakdowns on workforce characteristics into production and nonproduction workers.15 Nonetheless, it is of interest to ask how the results might be related to U.S.
labor markets.
Wage-setting in Israel is more centralized than in the U.S.A. Wages for private
and public sector workers are largely determined through collective bargaining
between the Histadrut labor union to which the vast majority of workers belong.,
the government, and the Israel Manufacturers Association. The Histadrut also
owns many firms.. Subsequent to bargaining, individual firms are able to further
negotiate over wages. For details, see Kleiman 1986.. Additionally, although somewhat diminished in the last decade in Israel, wage-linkages between industries and
occupations and agreements for automatic promotion still exist Bank of Israel
1990..
Nonetheless, the empirical structure of wages in Israel is quite similar to that in
the U.S.A. To provide some evidence on this comparability, Appendix Table A2
columns 1. 3.. provides estimates of standard log wage regressions for the 1988
Israel Income Survey, which is a CPS-type data set, while Appendix Table A3
columns 1. 3.. provides similar estimates for the 1988 CPS Annual Demographic
File for the U.S.A. Results are reported for regressions estimated separately by sex,
and pooled, for manufacturing workers only. The wage-regression estimates are very
similar in the Israeli and U.S. samples. For example, schooling coefficients are
similar, as is the experience profile, and there is a positive marriage premium for
men but none for women. In addition, the explanatory power of the wage regressions
is similar in the two countries, despite the greater centralization of wage-setting in
Israel.
The estimates in column 3. of Appendix Table A2 also reveal a sex difference in
wages in Israel of 20 percent, controlling for other observables, and restricting other
coefficients to be equal across the sexes. This estimate is within the range of similar
estimates for the U.S.A. Gunderson 1989., although smaller than the comparable
15
Recently, Troske 1993. has matched data on individuals from the U.S. Census of Population to
firms in a subset of the Census of Manufacturers. Like the data set we use in this paper, this
matched data set provides information on production function variables as well as information on
the demographic characteristics of workers, although the latter are for only a sample of each firms
workers. We are in the midst of a research project that will explore similar issues to those explored
in this paper. In the conclusion, we briefly describe some preliminary results from this project.
104
1988 CPS estimate. It is this type of estimate that is interpreted in the existing
literature as measuring discrimination, or, alternatively, unobserved sex differences
in productivity, and on which this paper aims to provide new evidence.
Finally, the legislation which exists in Israel to protect women in the workforce is
similar to that in the U.S.A., although comprehensive legislation protecting women
in Israel is more recent. The Equal Pay Law of 1964 requires an employer to provide
equal pay to a woman for work equal to that done by a man in that workplace. Equal
opportunity for women in promotion was initiated in a 1973 court case and equal
opportunity in promotion and hiring was legislated in the 1981 Equal Opportunities
in Employment Law. It was not until the 1988 Equal Opportunities in Employment
Law that these protections against discrimination were extended to cover all aspects
of employment Raday 1991..
6.
THE EMPIRICAL RESULTS
6 A. Basic Results. We jointly estimated the production function and wage

equations to allow for correlation in the errors between the two equations, and to
test the equality of the wage and marginal productivity differentials. Results are
given in Table 1. The key parameter of interest in the production function is , the
coefficient on the proportion of females in the firm. The specifications vary by the
sets of other control variables included. In each of the specifications, the estimate of
is significantly less than one at the 10 percent level or less.; the estimated
productivity differential is generally about 19 percent.
One interpretation of this result is that women are less productive than men. But
these results do not tell us whether women are less productive in all firms or jobs, or
are instead hired into less-productive jobs or less-productive firms consistent with
evidence in Blau 1977.. We do know, however, that all else the same, labor is less
productive in firms with relatively more female workers. We return to this issue
later.
The coefficients on the occupational differentials are consistent with higher
productivity for more highly skilled workers. The coefficient on the proportion of
technical workers, T , ranges from 1.97 to 2.26 in columns 2. 6., implying that
technical workers are twice as productive as workers in the unskilled category,
though the standard errors are about 0.48. The coefficient on the proportion of
engineers, E , generally exceeds 4, and although the standard errors are quite large,
the estimates still imply that engineers are significantly more productive than
unskilled workers.
In each of the columns 1. 6. of Panel A of Table 1, the p-values are given for
the significance of each of the sets of dummy variables added as controls. The
industry dummy variables are jointly significant in all specifications. No other sets of
dummy variables are jointly significant. Consequently, we use the specification in
column 6. for the sensitivity analyses reported below.
The estimates of the coefficients of the wage equation are given in Panel B of
Table 1. The productive inputs of the firm are not included in the specification in
column 1., and the estimates of the other coefficients change considerably upon
105

TABLE 1
JOINT PRODUCTION FUNCTION AND WAGE EQUATION ESTIMATES *
1.
Proportion women.
T Technical workers.
E Engineers.
Log capital
per worker-year.
Log materials
per worker-year.
Log research and
development services
per worker-year.
Other variables included:
p-value for joint
significance .
Industry dummy
variables 6.
Sector dummy
variables 4.
Firm size dummy
variables 3.
Location dummy
variables 3.
Year of establishment
dummy variables 4.
Standard error
Correlation between
production function
and wage equation errors
2.
3.
4.
A. Production Function Estimates

0.61
0.74
0.82
0.82
0.06.
0.08.
0.10.
0.10.
2.52
2.26
2.08
2.05
0.43.
0.47.
0.49.
0.48.
3.94
4.20
4.09
4.03
0.59.
0.69.
0.72.
0.72.
0.00
0.07
0.05
0.05
0.01.
0.01.
0.01.
0.01.
0.56
0.56
0.61
0.61
0.01.
0.01.
0.01.
0.01.
0.00
0.00
0.01
0.00
0.01.
0.01.
0.01.
0.01.
Yes
0.00.
No
Yes
0.00.
No
Yes
0.00.
No
No
No
No
Yes
0.00.
Yes
0.61.
No
No
No
No
No
No
No
No
No
0.25
0.60
0.24
0.55
0.24
0.53
0.24
0.54
5.
6.
0.80
0.10.
1.97
0.48.
3.99
0.73.
0.05
0.01.
0.60
0.01.
0.01
0.01.
0.81
0.10.
2.06
0.48.
4.11
0.72.
0.05
0.01.
0.61
0.01.
0.01
0.01.
Yes
0.00.
Yes
0.61.
Yes
0.49.
Yes
0.68.
Yes
0.48.
0.24
0.56
Yes
0.00.
No
No
No
No
0.24
0.55
their inclusion in columns 2. 6.. This may imply that the productive inputs are
proxies for unmeasured worker heterogeneity associated with sex. In particular, the
estimated coefficient of capital per worker in the wage equation added initially in
column 2.. is statistically significant, and the inclusion of this variable has a large
effect on estimates of and . This may reflect complementarity between capital
and unmeasured skill Griliches 1970., where this skill is negatively correlated with
the proportion of females, or it may reflect the coarseness of the occupational detail
in the data set. In columns 2. 6., the estimates of , measuring the female wage
differential, are about 0.75, and are significantly below one.16
16
The estimated wage differential in column 1. is considerably larger. The same is true of the
estimated productivity differential in column 1.. This specification excludes the productive inputs
from the wage equation, although this specification may be incorrect if there is unmeasured worker
heterogeneity that is complementary with, or simply related to, these inputs. Because the production
function and wage equation are estimated jointly, a misspecified wage equation will result in biased
estimates of the production function parameters. The fact that the sex wage differential in column
1. of Panel B is so much larger than the individual-level wage regression estimate in Appendix
Table A2. suggests that the wage equation in column 1. is misspecified.
106

TABLE 1
CONTINUED.
1.
Proportion women.
E Engineers.
2.
3.
B. Wage Equation Estimates

0.53
0.70
0.77
0.03.
0.04.
0.04.
2.57
2.03
1.81
0.27.
0.21.
0.20.
2.98
2.64
2.35
0.33.
0.27.
0.25.
0.17
0.11
0.01.
0.01.
0.12
0.01.
0.00
0.01.
Log capital
per worker-year
Log materials
per worker-year
Log research and
per worker-year
Other variables included:
p-value for joint
significance .
Industry dummy
Yes
0.00.
variables 6.
Sector dummy
No
variables 4.
Firm size dummy
No
variables 3.
Location dummy
No
variables 3.
Year of establishment
No
dummy variables 4.
Standard error
0.38
Joint significance of
production inputs p-value.:
4.
5.
6.
0.77
0.04.
1.74
0.19.
2.24
0.24.
0.09
0.01.
0.12
0.01.
0.00
0.01.
0.75
0.04.
1.69
0.19.
2.24
0.24.
0.06
0.02.
0.13
0.01.
0.02
0.01.
0.75
0.04.
1.71
0.19.
2.26
0.24.
0.06
0.01.
0.13
0.01.
0.02
0.01.
Yes
0.00.
Yes
0.00.
Yes
0.00.
Yes
0.01.
Yes
0.00.
0.31
Yes
0.00.
No
Yes
0.00.
No
No
No
Yes
0.00.
Yes
0.00.
No
No
No
No
No
No
No
0.33
0.32
0.32
Yes
0.00.
Yes
0.01.
Yes
0.01.
Yes
0.00.
Yes
0.01.
0.31
0.00
0.00
0.00
0.00
C. Test Statistics p-values.

Sex differentials:
s
Occupational differentials:
T s T
E s E
0.08
0.48
0.59
0.55
0.52
0.44
0.89
0.05
0.57
0.01
0.50
0.01
0.45
0.00
0.48
0.01
0.39
0.00
*Standard errors of the estimates are reported in parentheses. The sample size is 998. Estimates
of the intercept are not reported. Test statistics are from Wald tests.
The estimated wage differentials for engineers and technicians suggest that they
are paid more than unskilled workers. For technical workers, the estimated wage
differential, T , is between 1.69 and 2.03. The estimated wage differential for
engineers, E , is between 2.24 and 2.64. The differentials for both occupations are
significant. In the wage equation, unlike in the production function, all the sets of
dummy variables are highly significant. This indicates that there is much more
heterogeneity across firms in wages than in productivity, and suggests that firms may
be wage takers in narrowly defined labor markets.
The test statistics for the equality of sex differences in marginal productivity and
wages, based on various joint estimations of the production function and wage
107
equation, are given in Panel C of Table 1. The main result is that although women
are paid less than men, the estimated wage gap is only slightly larger than the
estimated productivity gap. Focusing on the estimates from columns 2. 6. the
specification in column 1. is strongly rejected by the data., the estimated wage gap
exceeds the productivity gap by 0.040.06.17 However, the p-values for the test of
the equality of sex differentials s . indicate that the hypothesis that the sex gap
in wages equals the sex gap in marginal productivity cannot be rejected the p-values
range from 0.44 to 0.59..18
We explained above how variation in the proportion of females may reflect
exogenous variation attributable to employers discriminatory tastes. However, it is
possible that only employers earning rents indulge these tastes. This would tend to
bias the estimate of downward, as women are hired into the less profitable or less
efficient firms. To the extent that rents are shared with their male workers, this
would tend to create bias in the same direction in the estimate of , although it is
possible that is biased downward by more than , which would obscure evidence
of discrimination in wages. The estimates in columns 4. 6. of Table 1 shed some
light on this question. As we add controls for sector, size, location, and plant
agevariables that might be correlated with plant-specific rentsthe estimate of
scarcely moves at all. Therefore, we suspect that this source of bias is unimportant.
Finally, we note that estimates of wage discrimination from standard wageregression techniques are typically in the range of 15 to 20 percent, if not higher
e.g., Neumark 1988.. Our estimates of the difference between the sex gaps in wages
and productivity range from two to eight percentage points, in Table 1 and the tables
that follow. Therefore, in our view, the failure to find significant evidence of a sex
gap in wages that exceeds any productivity gap should not be attributed to an
inability to detect the statistical significance of sizable deviations between wages and
marginal products. Rather, this failure should be attributed to the considerably
smaller point estimates of the degree of discrimination that we obtain by directly
comparing wage and marginal productivity differentials. For example, in Table 1,
column 6., the estimate of the difference between these gaps is six percentage
points. Based on the estimated standard error of this difference, a difference of 16
17
The results were similar when we estimated the production function and wage equations
separately. The estimates standard errors. of and were 0.82 0.10. and 0.75 0.04..
18
The results suggest that engineers may be underpaid. In all the specifications, E , the relative
wage of engineers, is significantly lower than their relative marginal productivity. This finding may
be attributable to the rapid development of an excess supply of engineers in the latter part of the
1980s, as defense budgets were cut and the Lavi fighter project was canceled in 1987. see Halperin
and Tsiddon 1992.. Market wages of engineers may have fallen in response to this excess supply,
while nondefense firms may have been able to increase employment of engineers only slowly, thus
leading marginal productivity differentials to exceed wage differentials. Estimates of the production
functions and wage equations by industry are consistent with this possibility. For Electronics, which
might be most affected by the excess supply of engineers, the corresponding estimates of E and E
are 5.46 and 2.50, respectively, with the p-value for the test of equality equal to 0.12. For five of the
six other industries with the exception of Chemicals. the estimates of E and E are closer
together, and the evidence against equality is weaker the p-values range from 0.46 to 0.75..
108
percentage points would be significant at the five-percent level in a two-sided test,

and a difference of 13 percentage points would be so in a one-sided test.19
6 B. Additional Analyses. We now turn to analyses of possible specification
errors, and of the robustness of the results. In general, the results presented in the
previous section are very robust.
One source of potential specification error is the assumption, imposed because of
data limitations, that women are equally represented in all occupations. We attempt
to relax this assumption in two ways. First, we use the sample covariation between
the proportion of females and occupational composition to construct estimates of
the proportion of females in each occupation. We do this for the whole sample, and
for the sample disaggregated by industry and by firm size. We use these estimates to
reallocate workers in each firm, so as to better replicate the patterns of occupational
segregation by sex. The details of this adjustment are given in the Appendix. We
then estimate and using expressions for YrL and QLrL that allow the
proportion of females to vary by occupation.
Second, we estimate the production function and wage equation based on alternative assumptions regarding the distribution of men and women across occupations.
We consider two possibilities that are consistent with considerable segregation by
sex across occupations: one in which WT s W and WE s 0, that is, technicians is an
integrated occupation, but engineers are exclusively male, and one in which WE s
WT s 0.20
Table 2, columns 1. 5., reports results for the estimates of the key parameters
based on these alternative estimates or assumptions regarding the proportion of
females in each occupation. The results are largely unchanged. The estimated sex
gap in productivity is now around 22 percent, and is statistically significantly less
than one, while the wage gap is 25 percent. If anything, the point estimate of the
difference between the wage and productivity gaps falls, to between two and five
percentage points. The difference between the wage and productivity gaps is never
statistically significant. Thus, our findings are apparently not sensitive to the restriction that women are represented equally in each occupation.
As a second approach to considering biases from the under-representation of
women in the engineer and technician categories, we reestimated the productivity
and wage equations restricting attention to the 343 out of 998. firms with no
engineers or technicians. For this subsample, the under-representation is not an
19
Because some monthly data are imputed for about one-third of the observations, the standard
errors might be understated. A conservative approach to correcting them would be to treat the
sample as containing one-third fewer observations, in which case the standard errors should be
multiplied by the square root of 3r2, or 1.22. This is conservativeoverstating the standard errors
because only some of the data are imputed for these firms, and none of the data on the
proportion of females are imputed.. In this case, the calculation in the text would imply that a
difference of 20 percentage points would be significant at the five-percent level in a two-sided test,
and a difference of 16 percent would be so in a one-sided test.
20
We adjust the proportion of females in the other occupations to ensure that the overall
proportion of females at the firm is unchanged. In a few cases, the assumed proportion of females in
the unskilled category WU . exceeded unity, in which case the excess women were distributed to the
other occupations proportionately to overall employment in those occupations in the firm.
109

TABLE 2
STRUCTURAL PRODUCTION FUNCTION AND WAGE EQUATION ESTIMATES FOR ALTERNATIVE
DISTRIBUTIONS OF WOMEN ACROSS OCCUPATIONS, AND ALTERNATIVE HOURS ADJUSTMENTS*
Occupation Adjustments
Regression adjustments
Hours Adjustments
Extreme distribution
adjustments
Overall
Industry Firm-size WE s 0,
Overall
Industry
adjustment adjustment adjustment WT s W WE s WT s 0 adjustment adjustment
1.
2.
3.
4.
5.
6.
7.
Selected parameter
estimates:
Test statistic
p-value.:
s
Estimated or
assumed
proportions in
each occupation:
Other
Technicians
Engineers
Mean estimated
ratio range. of
womens hours
to mens hours:
0.79
0.10.
0.75
0.04.
0.80
0.09.
0.75
0.04.
0.78
0.10.
0.75
0.04.
0.78
0.10.
0.75
0.04.
0.77
0.10.
0.75
0.04.
0.82
0.10.
0.74
0.04.
0.82
0.10.
0.74
0.04.
0.63
0.57
0.67
0.76
0.85
0.38
0.37
0.30
0.21
0.24
0.28
0.22
0.34
0.30
0.20
0.26
0.31
0.29
0.00
0.33
0.002
0.002
0.85
0.85
0.790.89.
* Standard errors of the estimates are reported in parentheses. Specifications correspond to Table
1, column 6.. Production function and wage equation estimates were estimated jointly. In column
1. the regression of proportion of females on occupations was estimated for the whole sample. In
column 2. it was estimated by industry, and in column 3. by firm size. Adjustments were then
carried out as described in the Appendix. In columns 4. and 5., if the assumed proportion of
females in the unskilled occupation exceeded one the excess women were distributed to engineers
and technicians proportionately to employment in those occupations in the firm. Ratios in columns
5. and 6. were based on estimates of average usual weekly hours of men and women in
manufacturing in the 1988 Income Survey.
issue. The qualitative conclusions were unchanged. The estimated difference y

was 0.06, and was not significantly different from zero.
Next, as explained earlier, the labor input by which we divide output as well as the
other inputs is a worker-year measure, whereas the proportion of females variable is
the proportion of female employees in the firm. If women average fewer work hours
per year than men, then the proportion of females variable will overstate the
proportion of worker-years worked by women. To attempt to correct for this
problem, we estimated the ratio of hours of women to those of men using data on
manufacturing workers from the 1988 Israel Income Survey. This survey has data on
usual weekly hours, although not on weeks worked per year. The lack of information
on weeks worked creates two offsetting biases in estimating the ratio of womens to
mens hours in these data. On the one hand, mens hours are overstated because the
hours measure does not take account of military reserve duty. On the other hand,
110
women may tend to work only part of the year, so that the hours measure also
overstates their labor supply. The overall ratio of the usual weekly hours of women
to that of men was 0.85. In column 6. of Table 2 we report estimates in which we
use this estimate to adjust the proportion of females variable to measure the
proportion of hours worked by women, before estimating the equations. In column
7., in contrast, we use hours ratios estimated by industry, and do the adjustment by
industry. The conclusions are unchanged using these alternative estimates of the
hours ratios. to calculate the proportion of hours worked by women, although the
estimate of rises slightly to 0.82. In neither column is there statistically significant
evidence of a sex gap in wages that exceeds a productivity gap, although the
estimated difference rises to 0.08.
We also estimated the production function and wage equation specifications
corresponding to Table 1, column 6., separately by industry, firm size, and sector, in
order to check the robustness of our results for the full data set. The results for the
key estimates relating to sex differentials are given in Table 3. Although the results
do differ somewhat across these groups, we find no compelling evidence in the
disaggregated results against the hypothesis that the wage differences reflect differences in marginal products. Admittedly, though, many of these estimates are
uninformative. Because the evidence suggests discrimination against men in Food
and Beverages, in the last column of the top panel we report results excluding this
industry, to see if the evidence of discrimination against women is stronger in the
remaining industries. This does not turn out to be the case; the estimates standard
errors. of and are 0.83 0.10. and 0.76 0.05., and the p-value for the test of
equality is 0.37.
The Cobb-Douglas production function can be interpreted as a first-order linear
approximation to a general production function. The translog production function,
as a second-order approximation, is less restrictive. We estimated a translog production function, again using QL as the labor input, and imposing constant returns to
scale see Jorgenson et al., 1973.. Results of the joint estimation of the production
function and wage equation are reported in Table 4. In the unrestricted specification, in column 1., in which all second-order terms are included, the estimated
productivity gap is actually significantly larger than the estimated wage gap 0.61
versus 0.72.. When we drop the second-order terms with insignificant coefficients,
the estimated productivity gap remains larger, but the p-value rises to 0.08. Thus,
the translog estimates certainly do not provide any evidence of wage discrimination
against women.
We also considered the possibility that biases in the estimates of the coefficients
of the productive inputs affected our results. These biases could arise from measurement error or from endogeneity most likely of the labor or materials input.. To
examine this, instead of estimating , , and , we imposed values equal to the
sample means of the shares of capital, materials, and R&D expenditures in the
value of output; for the Cobb-Douglas specification, these restrictions should hold.
The results were unchanged. The estimate standard error. of was 0.75 0.08., the
estimate of was 0.73 0.04., and the p-value for the test of equality was 0.81.
Because we were somewhat uncomfortable with the sharp differences between the
wage and productivity differentials across occupations, we also reestimated the
111
TABLE 3
ESTIMATES AND KEY PARAMETERS FOR PRODUCTION FUNCTION AND WAGE EQUATION ESTIMATES
DISAGGREGATED BY INDUSTRY, FIRM SIZE, AND SECTOR*
By Industry
Test statistic
p-value.:
s
Sample Size
All industries
Food and excl. food and
beverages
Machinery Electronics beverages
4.
5.
6.
7.
Textiles
1.
Paper
2.
Chemicals
3.
0.71
0.11.
0.67
0.07.
0.94
0.20.
1.04
0.13.
1.10
0.36.
0.72
0.10.
0.84
0.30.
0.87
0.18.
0.99
0.46.
0.58
0.13.
0.43
0.20.
0.80
0.11.
0.83
0.10.
0.76
0.05.
0.71
182
0.52
167
0.23
139
0.91
180
0.31
128
0.04
165
0.37
833
549
1.
5099
2.
100299
3.
300q
4.
0.79
0.13.
0.78
0.07.
0.93
0.29.
0.70
0.09.
0.72
0.16.
0.72
0.06.
1.38
0.53.
0.64
0.09.
0.96
494
0.36
190
1.00
208
0.15
106
By Size Category
Test statistic
p-value.:
s
Sample Size
By Sector
Private Publicly held
1.
2.
Test statistic
p-value.:
s
Sample Size
Histadrut
3.
0.84
0.10.
0.77
0.05.
0.59
0.26.
0.68
0.09.
1.03
0.52.
0.65
0.14.
0.41
779
0.71
82
0.44
114
* Specifications correspond to Table 1, column 6.. Production function and wage equation
estimates were estimated jointly. Industry dummies are dropped in the first panel, firm size dummies
in the second panel, and sector dummies in the third. Separate regressions were not estimated for
Light Industries, which had 37 observations, or for public-sector firms, which had 23 observations.
model imposing equality of these differentials, to see if the results for the sex gaps in
wages and productivity were affected. The point estimates of and were
unaffected; the estimates standard errors. were, respectively, 0.81 0.10. and 0.75
0.04.. The p-value for the test of their equality was 0.49.
Finally, because the labor force participation of women in Israel has trended
upwards as in other industrialized countries, firms with higher proportions of women
may on average have younger workers. If wages are governed by Lazear-type
contracts Lazear 1979., then wages in firms with high proportions of women may
fall short of productivity because these firms have relatively high proportions of
112
TABLE 4
JOINT TRANSLOG PRODUCTION FUNCTION AND WAGE EQUATION ESTIMATES*
Production Function Parameters:

Proportion women.
E Engineers.
Log capital
per worker-year.
Log materials
per worker-year.
Log research and
per worker-year.
Labor = capital
Labor = materials
Labor = R& D
Capital = materials
Capital = R& D
Materials = R& D
Wage Equation Parameters:
Proportion women.
E Engineers.
Log capital
per worker-year
Log materials
per worker-year
Log research and
per worker-year
Test Statistics:
s
Unrestricted
Parsimonious
1.
2.
0.61
0.05.
1.83
0.37.
3.51
0.51.
0.10
0.03.
0.17
0.04.
y0.02
0.02.
0.64
0.05.
1.88
0.35.
3.48
0.45.
0.10
0.02.
0.16
0.02.
0.02
0.01.
y0.15
0.01.
0.004
0.01.
y0.02
0.01.
0.001
0.01.
0.004
0.01.
0.01
0.01.
y0.14
0.01.
y0.02
0.01.
0.72
0.04.
1.69
0.18.
2.15
0.23.
0.07
0.01.
0.12
0.01.
0.01
0.01.
0.72
0.04.
1.72
0.18.
2.21
0.23.
0.07
0.01.
0.12
0.01.
0.01
0.01.
0.03
0.08
* Standard errors of the estimates are reported in parentheses. The

sample size is 998. Estimates of the intercept are not reported. The specification parallels Table 1, column 6.; the production function equation
includes industry dummy variables, and the wage equation includes dummy
variables for industry, sector, firm size, location, and year of establishment.
Estimates of production function and wage equation were estimated jointly.
For test statistics, p-values from Wald tests are reported.
113
young workers who are paid less than their marginal products regardless of their sex.
This could bias the results towards finding evidence of a sex gap in wages that is
larger than any productivity gap. Conversely, if wage profiles are influenced by
specific human capital investments, wages of young workersand therefore women
may tend to exceed marginal product, creating a bias in the opposite direction.
To consider these possible biases, the labor quality index in the production
function equation 4.. can be augmented to allow for productivity differentials by
age, and the wage equation 10. can be similarly augmented. We may also be
interested in incorporating data on ages of workers as proxies for experience.. The
age coefficients in both the production function and the wage equation were
consistent with rising wages and productivity with age. However, the estimates of
and from this specification were unchanged. The estimate standard error. of
was 0.81 0.10., while that of was 0.75 0.04.. Thus, after accounting for possible
biases from the relationship between the age and sex composition of the firms
workforce, there still does not appear to be a sex gap in wages that exceeds the
productivity gap.
While this subsection has considered a number of potential specification errors
about which we can say something using the data, the possibility remains that other
specification errors bias the results. These may include, among other things, omitted
variables, insufficient disaggregation of occupations, measurement error, and so on.
Perhaps the most glaring omitted variable, given all the attention it has received in
the wage equation literature, is schooling levels of the workforce. In the 1988 Israel
Income Survey, however, the mean schooling difference between men and women is
small; the mean for men is 10.94 years, versus 10.85 years for women, while the
proportion with more than 12 years of schooling is 0.28 for men, and 0.23 for
women. Thus, schooling differences between men and women seem unlikely to bias
the estimates by more than a negligible amount.
Moreover, even if the schooling differences were larger, the omission of schooling
might bias estimates of and , but not estimates of the difference between them
y ., which is the magnitude that is central to our test. In fact, the same
statement can be made regarding any omitted variable that affects wages and
marginal products similarly. Nonetheless, it may be of interest to ask whether the
estimates of and , individually, are likely to be biased. We have no source of
corroborating evidence for , the relative marginal product of women. However, we
do have such evidence for , the relative wage. The estimated relative wage of
0.750.80 in the firm-level data matches quite closely the estimated wage gap of
20 percent in individual-level wage regressions reported in Appendix Table A2,
even though the individual-level wage regression includes many more control variables. This suggests that the estimates of and are relatively free of omitted
variable bias.
7.
INTERPRETING THE FIRM-LEVEL EVIDENCE
Our results are consistent with a finding of no sex discrimination, where discrimination refers to a wage gap that does not reflect a corresponding productivity
gap. There are a few alternative interpretations of this result. One is that within
114
jobs, women are less productive than men, and are therefore paid less, because they
supply less effort at work Becker 1985.. Alternatively, differences in preferences, or
lower human capital investment because of anticipated career interruptions associated with greater household responsibilities Cox 1984, Mincer and Polachek 1974,
Polachek 1975, Weiss and Gronau 1981., may result in lower pay and productivity of
women. Finally, there may be hiring or promotion. discrimination such that women
are crowded into a subset of occupations or firms and are consequently less
productive and receive lower wages Bergmann 1974..21
In order to test whether the data are consistent with crowding of women into
certain firms or occupationsleading to low wages and productivity in those firms
and occupationswe would need data on the wages, sex, and occupations of
individuals within the firms in our sample. Given that we found similar wage and
productivity differentials associated with female workers, it is sufficient to look just
at wages or productivity. Since these firm-level data do not exist, we have used
individual-level wage regressions from the 1988 Israel Income Survey to try to gauge
the plausibility of a crowding interpretation of our firm-level results. The results of
these regressions are given in Table 5.
First, for comparison between the Income Survey and our previous firm-level
estimates, the results in column 1. are from the individual-level regression which,
given data constraints, most closely resembles our firm-level equation in column 6.
of Panel B of Table 1. We regress individual log wages on dummy variables for the
broad occupation categories of engineer and technician, a female dummy variable,
and industry and location dummy variables; the coefficient on the female dummy
is y0.28.
The Income Survey has no information to match workers to firms. The Income
Survey does provide information, however, on industry and occupation at the
two-digit level, and these data can be used to ask whether the data are consistent
with crowding. For example, if women are crowded into particular industries, relative
wages and productivity are driven down in those industries. In this case, an
individuals wage should be relatively low when the proportion of women in his or
her industry is high. Further, it should be this female proportion effect, rather than
the sex of the individual, that accounts for most of the negative relationship between
sex and wages.
In columns 2. and 3. we computed the proportion of females in each of 18
two-digit industries and added it as a regressor in the individual-level wage regres-
21
To see that our firm-level data cannot reject the crowding hypothesis, note that the firm-level
wage equation 9. can also be derived from an individual-level equation in which the wage is a
function of the overall proportion of females in the firm, that is,
wi s wM U Ui q wM E Ei q wM T Ti q y 1 . Wi ,
where Wi is the proportion of females in the firm. Using the firm-level data, it is impossible to
distinguish between this individual-level specification and the one described in footnote 9, because
we identify sex differences in wages from variation across firms between wages and the proportion of
females, not variation within firms.
115

TABLE 5
INDIVIDUAL-LEVEL LOG WAGE REGRESSIONS FROM 1988 ISRAEL INCOME SURVEY,
SPECIFICATIONS PARALLELING FIRM-LEVEL EQUATIONS DEPENDENT VARIABLE: LOGARITHM
AVERAGE MONTHLY SALARY r USUAL MONTHLY HOURS..*
1.
2.
3.
4.
5.
6.
7.
8.
9.
Independent variables:
Female
y0.28
y0.26
y0.29
y0.31 y0.30 y0.31

0.04.
0.04.
0.04.
0.05. 0.05. 0.09.
Proportion female in
y0.50 y0.24
y0.27 y0.25
0.16. 0.16.
0.16. 0.17.
two-digit industry
y0.06
0.22.
two-digit industry
=female
y0.38
0.18
0.12. 0.12.
one-digit occupation
y0.29
0.08
0.10
0.07
0.06. 0.08. 0.08. 0.11.
two-digit occupation
0.08
0.16.
=female
Technician
0.29
0.28
0.28
0.28
0.28
0.28
0.06.
0.06.
0.06.
0.06. 0.06. 0.06.
Proportion technicians
0.68
0.40
0.89
0.53
0.80
0.54
0.40
0.40
0.42. 0.40. 0.41. 0.39. 0.41. 0.39. 0.40. 0.41.
in two-digit industry
Engineer
0.63
0.62
0.65
0.63
0.63
0.63
0.07.
0.07.
0.08.
0.07. 0.07. 0.07.
Proportion engineers
1.26
0.61
1.78
0.72
1.56
0.81
0.59
0.59
0.86. 0.82. 0.85. 0.81. 0.84. 0.81. 0.82. 0.82.
in two-digit industry
R2
0.13
0.21
0.21
0.13
0.21
0.13
0.21
0.21
0.21
* Estimates are based on a sample of 1305. Standard errors are reported in parentheses. All
specifications include intercepts, and industry and location dummy variables defined to correspond
as closely as possible with the categories in the Industrial Survey. Proportion of females variables are
based on 18 two-digit industries within manufacturing ., 9 one-digit occupations, and 59 two-digit
occupations.
sions, first alone and then along with the female dummy.22 The resulting estimate on
the proportion of females in the industry in column 3. is y0.24, and is insignificant.
More importantly, the estimated coefficient on the female dummy does not change
much upon inclusion of this industry-level data: it is y0.26 and remains significant.
This result implies that even if there is a negative premium for working in a
female-dominated industry consistent with crowding., there is still a large, negative
and significant within-industry wage gap between men and women.
We also computed the proportion female in 9 one-digit occupations and 59
two-digit occupations. These data were then alternatively included in the individuallevel regressions. If the wage gap between men and women is attributable to women
being crowded into less productive occupations, one would expect a significant
negative coefficient on the variable that measures the proportion of females in each
22
The proportions of engineers and technicians in the two-digit industry are also included in the
regressions, to account for the possible concentration of these skilled workers in more productive
industries. Their exclusion did not affect the results.
116
occupation, and an insignificant coefficient on the female dummy. The empirical

results do not bear this out. In column 8., the coefficient on the proportion of
females in the occupation using the 59 two-digit occupations. is positive and
insignificant, but the coefficient on the female dummy is y0.30 and significant.
It is possible, of course, that the crowding of women occurs at a more disaggregated level than we can measure, and that the female dummy in these regressions
remains a proxy for this unmeasured segregation. We cannot be definitive here. On
one hand, if the problem is the level of aggregation, we would expect the estimated
effect of the female dummy variable to be weaker, and that of the proportion of
females variable to be stronger more negative., when we go from one-digit to
two-digit occupations. A comparison of columns 5. and 7. reveals that this is not
the case. If anything, the estimated coefficient of the female dummy variable is more
negative in the two-digit equation. On the other hand, the reductions in the sex gaps
in productivity and wages when controlling for capital per worker in column 2. of
Table 1. imply that firms with lower capital-labor ratios have a higher proportion of
females. This indicates that there are differences between the firms in which men
and women work, even after controlling for industry and occupation at the highly
aggregated levels for which information is available in the firm-level data. If there
are readily observable differences across firms, within industries and occupations,
there may also be unmeasured differences.
It may be possible to shed further light on the crowding model by considering the
separate effects of the proportion of females for men and women. The crowding
model claims that women, but not men, are excluded from certain jobs. Thus, the
proportion of females may drive down wages relatively more for women than for
men, so that the estimated coefficients of the proportion of females variables in
columns 2. 8. of Table 5 are biased toward zero. Column 9. reports results from
adding interactions between the proportion of females and the female dummy
variable to the specification in column 8.. The estimated coefficients of the
proportion of females variables are little changed relative to column 8., and the
estimated coefficients of the interaction variables are close to zero and statistically
insignificant. 23 In our view, these results cast some doubt on the crowding explanation of our firm-level estimates of sex differences in wages and marginal productivity, although this explanation cannot be dismissed.
8.
CONCLUSIONS
We use firm-level data from Israeli manufacturers on production, inputs, labor

cost, and the sex composition of firms workforces to estimate marginal productivity
23
As columns 4. and 5. of Appendix Table A2 show, these results are unchanged when standard
control variables are added to the individual-level regression. Columns 4. and 5. of Appendix Table
A3 provide parallel results for the U.S.A., based on the 1988 CPS sample. In contrast to the results
for Israel, we find significant, negative effects of the proportion of females variables, with larger
effects than those for Israel. However, most of the independent negative effect of the female
dummy variable remains after controlling for the proportion of females in each womans industry
and occupation.
117
and wage differentials by sex. This represents a marked contrast with the wage-regression approach that uses individual-level data on human capital and other
variables as proxies for productivity.
The results indicate that, controlling for other productive inputs and firm characteristics, the proportion of females in a firm is negatively associated with both wages
and productivity. The productivity gap is estimated to be around 18 to 25 percent,
and is generally statistically significant, while the wage gap is estimated to be around
24 percent, and is always statistically significant. The estimated difference between
the productivity and wage gaps, which ranges from two to eight percentage points, is
not significantly different from zero. That is, we do not reject the hypothesis that
lower wages paid to women reflect lower marginal productivity. This result is robust
to alternative adjustments to the distribution of women across occupations and to
the male-female ratio of hours worked, and to numerous other sensitivity analyses.
This paper focuses principally on whether there is a sex gap in wages that exceeds
any productivity gap, as, for example, in the Becker 1971. employer discrimination
model. While we find no evidence of a significantly larger wage gap, we do find that
firms with more female workers pay lower wages and have less productive labor.
This finding could arise from lower effort supplied by women, or less human capital
investment by women. But it is important to emphasize that it could also arise from
discrimination that does not generate a wage gap exceeding the productivity gap.
One such form of discrimination is embodied in the crowding hypothesis, although
the available data are not consistent with this explanation of our results. Second, we
find it entirely plausible that women end up supplying less effort than men at work.,
or investing less in human capital, because Israeli society is structured so as to
discriminate against women in other aspects of the economy such as responsibility
for home production, which may render them less productive in the workforce.
Finally, in ongoing research Hellerstein et al., forthcoming. we attempt to carry
out a similar analysis for a sample of manufacturing plants in the U.S.A. matched to
subsets of their workforces using data from the Census of Population. The evidence
from the U.S. data indicates a sex-wage gap slightly larger than that in the Israeli
data about 30 percent., and a productivity gap that is smaller about 15 percent..
Coupled with a larger sample size, the net result is that the difference between the
sex gap in wages and the sex gap in marginal productivity is statistically significant in
the U.S. data. There are some potentially important differences between the two
data sources, including: i. the U.S. data do not represent a random sample of plants
matched to random samples of workers within those plants; and ii. the U.S. data
generally cover larger plants. Thus, while the different results for the two countries
may reflect real differences in labor market characteristics and outcomes of men and
women, they may also reflect differences in the data sources. Because we think that
our approach to testing for discrimination provides more useful information than
standard wage-regression approaches, we hope that other researchers will develop
similar data sets for other countries and time periods,24 permitting a more thorough
assessment of a wider array of evidence.
24
See Abowd et al. forthcoming..
118

APPENDIX
CORRECTING THE SEX COMPOSITION OF OCCUPATIONS
To correct for errors from assuming the same sex composition in each occupation,
we first estimate the regression
A1.
ln w Wr 1 y W . x s U q E Eq T T q .
We use the log-odds ratio to ensure that fitted values lie between 0 and 1. For
values of Ws 0, we substituted Ws 0.01, and for values of 1, we substituted 0.99..
We do this first for the sample as a whole, and then separately by industry and firm
size. The estimates of A1. are used to construct estimates of the proportion of
females in each occupation,
E WN Es T s 0 . s exp
U . r 1 q exp U . s WU ,
A2.
E WN Us T s 0 . s exp
U q E . r 1 q exp U q E . s WE ,
E WN Us Es 0 . s exp
U q T . r 1 q exp U q T . s WT .
We must also ensure that these sample estimates of the proportions of females by
occupation are consistent with the overall proportion of females in the firm,
A3.
Uf Uq WEf Eq WTf T s W ,
W
where the f superscript indicates the firm-level estimate of the proportion of

females in each occupation, and W is the actual proportion of females at the firm.
To do this, we distribute the discrepancy between the actual and fitted proportions
of females proportionately to the sample estimates of the proportion of females in
each occupation. That is, letting this discrepancy be
A4.
U Uy WE Ey WT T ,
ds Wy W
U Uq WE Eq WT T, we construct
and defining S s W
A5. WUf s WU q d WUrS,
Ef s WE q d WErS,
W
Tf s WT q d WTrS.
W
With this construction equation A3. holds. In cases where the fitted values for
the proportion of females in each occupation exceed one of which there were only a
few., we distributed the excess women to the other occupations proportionately to
their estimated employment in those occupations.
119

APPENDIX TABLE A1
SAMPLE DESCRIPTIVE STATISTICS*
Variables:
Proportion female
Log outputrworker-year
Log average wage
Proportion technicians
Proportion engineers
Log capital servicesrworker-year
Log materialsrworker-year
Log R& D servicesrworker-year
No R& D
Textiles
Paper
Chemicals and minerals
Metals and machinery
Electronics
Food and beverages
Light industries
Private
Public
Stock market
Histadrut
549 workers
5099 workers
100299 workers
300q workers
Mean
1.
Std. dev.
2.
Minimum
3.
Maximum
4.
0.29
3.83
2.59
0.05
0.04
1.03
3.14
y3.74
0.85
0.18
0.17
0.14
0.18
0.13
0.17
0.04
0.78
0.02
0.08
0.11
0.49
0.19
0.21
0.11
0.24
0.72
0.46
0.09
0.08
1.11
1.02
1.42
0.01
1.32
0.84
0.00
0.00
y1.95
y1.48
y4.25
0.99
6.42
4.05
0.70
0.69
4.10
6.34
3.92
* R&D expenditures are defined to equal 0.01 when firms responses indicate no R& D expenditures.
APPENDIX TABLE A2
OLS WAGE REGRESSION ESTIMATES FROM 1988 ISRAEL INCOME SURVEY, MANUFACTURING WORKERS
DEPENDENT VARIABLE: LOGARITHM AVERAGE MONTHLY SALARY r USUAL MONTHLY HOURS..*
Intercept
Female
two-digit industry
Proportion female in two-digit
industry = female
two-digit occupation =
female
Years of schooling
completed
Potential experience
Potential experience 2 = 10y2
Men
1.
Women
2.
Pooled
3.
Pooled
4.
Pooled
5.
0.38
0.13.
0.36
0.26.
0.43
0.12.
y0.20
0.04.
0.45
0.12.
y0.23
0.04.
y0.18
0.13.
0.11
0.07.
0.45
0.12.
y0.27
0.08.
y0.16
0.15.
y0.06
0.19.
0.04
0.09.
0.15
0.14.
0.06
0.01.
0.04
0.005.
y0.06
0.01.
0.07
0.01.
0.04
0.01.
y0.05
0.02.
0.06
0.01.
0.05
0.004.
y0.07
0.01.
0.06
0.01.
0.05
0.004.
y0.07
0.01.
0.06
0.01.
0.05
0.004.
y0.07
0.01.
120

APPENDIX TABLE A2
CONTINUED.
Textiles
Paper
Machinery
Chemicals
Electronics
Food and beverages
Technician
Engineer
Married
Divorced, widowed,
or separated
Full-time
Jerusalem
Tel-AvivrHaifa
Other city ) 50,000
Jewish
R2
Sample size
Men
1.
Women
2.
Pooled
3.
Pooled
4.
Pooled
5.
y0.08
0.11.
y0.00
0.10.
0.14
0.10.
0.17
0.11.
0.16
0.10.
0.02
0.11.
0.10
0.06.
0.27
0.07.
0.31
0.06.
0.12
0.12.
0.11
0.04.
y0.01
0.09.
0.16
0.05.
0.02
0.04.
0.01
0.07.
0.38
976
y0.21
0.19.
y0.01
0.20.
0.22
0.20.
0.005
0.20.
0.01
0.20.
y0.17
0.20.
0.24
0.16.
0.45
0.20.
y0.02
0.08.
y0.09
0.12.
y0.03
0.06.
0.27
0.15.
0.07
0.09.
0.02
0.06.
0.11
0.13.
0.32
329
y0.13
0.09.
y0.01
0.09.
0.14
0.09.
0.14
0.09.
0.13
0.09.
y0.03
0.09.
0.13
0.06.
0.29
0.07.
0.20
0.05.
0.04
0.08.
0.08
0.03.
0.06
0.07.
0.15
0.04.
0.02
0.03.
0.03
0.06.
0.40
1305
y0.08
0.10.
y0.01
0.09.
0.13
0.09.
0.13
0.09.
0.12
0.09.
y0.02
0.09.
0.14
0.06.
0.30
0.07.
0.20
0.05.
0.03
0.08.
0.09
0.03.
0.06
0.07.
0.15
0.04.
0.02
0.03.
0.03
0.06.
0.40
1305
y0.08
0.10.
y0.01
0.09.
0.13
0.09.
0.14
0.09.
0.13
0.09.
y0.02
0.09.
0.13
0.06.
0.30
0.07.
0.20
0.05.
0.04
0.08.
0.09
0.03.
0.06
0.07.
0.15
0.04.
0.02
0.03.
0.03
0.06.
0.40
1305
* Industry and occupation categories for dummy variables were defined to correspond as closely
as possible with the categories in the Industrial Survey. Standard errors are reported in parentheses.
APPENDIX TABLE A3
OLS WAGE REGRESSION ESTIMATES FROM 1988 CPS ANNUAL DEMOGRAPHIC FILE,
MANUFACTURING WORKERS DEPENDENT VARIABLE: LOGARITHM
USUAL WEEKLY EARNINGS r USUAL WEEKLY HOURS..*
Intercept
Female
two-digit industry
two-digit industry =
female
Men
1.
Women
2.
Pooled
3.
Pooled
4.
Pooled
5.
0.53
0.03.
0.63
0.03.
0.62
0.02.
y0.27
0.01.
1.17
0.02.
y0.20
0.01.
y0.37
0.02.
1.21
0.02.
y0.24
0.02.
y0.28
0.02.
y0.19
0.03.
y0.27
0.01.
y0.32
0.01.
121
APPENDIX TABLE A3
CONTINUED.
two-digit occupation =
female
Years of schooling
completed
Potential experience
Potential experience 2 = 10y2
Textiles
Paper
Machinery
Chemicals
Electronics
Food and beverages
Technician
Engineer
Married
Divorced, widowed,
or separated
Full-time
SMSA
South
White
R2
Sample size
Men
1.
Women
2.
Pooled
3.
Pooled
4.
Pooled
5.
0.11
0.01.
0.08
0.001.
0.03
0.001.
y0.04
0.002.
y0.04
0.01.
0.06
0.01.
0.09
0.01.
0.13
0.01.
0.07
0.01.
y0.01
0.01.
0.08
0.01.
0.18
0.01.
0.07
0.01.
y0.08
0.01.
0.21
0.02.
0.15
0.01.
y0.06
0.01.
0.14
0.01.
0.43
19,833
0.07
0.002.
0.02
0.001.
y0.03
0.002.
y0.14
0.01.
0.02
0.01.
0.12
0.01.
0.10
0.01.
0.05
0.01.
0.03
0.02.
0.18
0.03.
0.39
0.04.
y0.01
0.01.
y0.04
0.01.
0.19
0.01.
0.16
0.01.
y0.05
0.01.
0.09
0.01.
0.32
9,824
0.08
0.001.
0.02
0.001.
y0.03
0.001.
y0.10
0.01.
0.05
0.01.
0.10
0.01.
0.12
0.01.
0.06
0.01.
0.01
0.01.
0.10
0.01.
0.20
0.01.
0.05
0.01.
y0.07
0.01.
0.21
0.01.
0.15
0.01.
y0.06
0.01.
0.12
0.01.
0.46
29,657
0.06
0.001.
0.02
0.001.
y0.03
0.001.
0.02
0.01.
0.05
0.01.
0.08
0.01.
0.13
0.01.
0.10
0.01.
0.01
0.01.
0.08
0.01.
0.02
0.01.
0.04
0.01.
y0.06
0.01.
0.19
0.01.
0.15
0.01.
y0.07
0.01.
0.11
0.01.
0.49
29,657
0.06
0.001.
0.02
0.001.
y0.03
0.001.
0.03
0.01.
0.06
0.01.
0.08
0.01.
0.13
0.01.
0.09
0.01.
0.01
0.01.
0.08
0.01.
y0.01
0.01.
0.04
0.01.
y0.06
0.01.
0.19
0.01.
0.15
0.01.
y0.07
0.01.
0.11
0.01.
0.49
29,657
* Industry and occupation categories for dummy variables were defined to correspond as closely
as possible with the categories in the Industrial Survey. The sample was restricted to private-sector
manufacturing workers aged 16 or over. Standard errors are reported in parentheses.
122

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INTERNATIONAL ECONOMIC REVIEW

Vol. 40, No. 1, February 1999

SEX, WAGES, AND PRODUCTIVITY: AN EMPIRICAL ANALYSIS

Uni ersity of Maryland and N.B.E.R., U.S.A.

Nearly all empirical research on sex discrimination in wages focuses on estimates

Email: hellerst@econ.umd.edu; neumarkd@pilot.msu.edu

HELLERSTEIN AND NEUMARK

SEX, WAGES, AND PRODUCTIVITY

A STRUCTURAL PRODUCTION FUNCTION APPROACH

where K is capital, X is materials, R is R& D services, and QL is a labor quality

where ME is the number of male engineers, FE the number of female engineers,

HELLERSTEIN AND NEUMARK

The production function then becomes

ln YrL . s A q ln KrL . q ln XrL . q ln RrL .

SEX, WAGES, AND PRODUCTIVITY

HELLERSTEIN AND NEUMARK

w s wMU MUrL . q wME MErL . q wMT MTrL .

w s wMU MUrL . q wME MErL . q wMT MTrL .

In this case an employers utility function is written, for example, as

SEX, WAGES, AND PRODUCTIVITY

Using W as the proportion of females in the workforce and in each occupation.,

where, e.g., E s wMErwMU , and measures the sex differential in wages.

HELLERSTEIN AND NEUMARK

SEX, WAGES, AND PRODUCTIVITY

proportion of worker-years worked by women, but rather the proportion of workers

COMPARABILITY TO THE U.S.A.

HELLERSTEIN AND NEUMARK

THE EMPIRICAL RESULTS

6 A. Basic Results. We jointly estimated the production function and wage

SEX, WAGES, AND PRODUCTIVITY

A. Production Function Estimates

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B. Wage Equation Estimates

C. Test Statistics p-values.

SEX, WAGES, AND PRODUCTIVITY

HELLERSTEIN AND NEUMARK

percentage points would be significant at the five-percent level in a two-sided test,

SEX, WAGES, AND PRODUCTIVITY

issue. The qualitative conclusions were unchanged. The estimated difference y

HELLERSTEIN AND NEUMARK

SEX, WAGES, AND PRODUCTIVITY

HELLERSTEIN AND NEUMARK

Production Function Parameters:

* Standard errors of the estimates are reported in parentheses. The

SEX, WAGES, AND PRODUCTIVITY

INTERPRETING THE FIRM-LEVEL EVIDENCE

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SEX, WAGES, AND PRODUCTIVITY

y0.31 y0.30 y0.31

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occupation, and an insignificant coefficient on the female dummy. The empirical

We use firm-level data from Israeli manufacturers on production, inputs, labor

SEX, WAGES, AND PRODUCTIVITY

See Abowd et al. forthcoming..

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where the f superscript indicates the firm-level estimate of the proportion of

SEX, WAGES, AND PRODUCTIVITY

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SEX, WAGES, AND PRODUCTIVITY

HELLERSTEIN AND NEUMARK

SEX, WAGES, AND PRODUCTIVITY

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