Cyclical dynamics and the gender pay gap: A structural VAR approach

Gender pay gaps persist worldwide despite political emphasis to close them. The literature found various drivers of the gaps but remained vastly silent about the role of cyclical dynamics. Using quarterly US data over the period 1979-2019, we study the effects of cyclical dynamics on the gender pay gap based on a structural vector auto-regression model with zero and sign restrictions. The results suggest that technology shocks lead to lower levels of the gender pay gap in the medium run, while higher wage bargaining power reduces the gap in the short run. However, these reductions of the gap come at the cost of increased unemployment. As a policy implication, these results imply a trade-off between lower gender pay gaps and higher unemployment.