Inflation widens gender wage gap through divergent labor market beliefs
A Norges Bank working paper reveals that inflation systematically widens the gender wage gap. This phenomenon is linked to women's more pessimistic labor-market beliefs in response to inflationary shocks, impacting their wage growth relative to men.
Inflation's hidden cost: A widening gender gap
This paper documents two empirical facts regarding inflation and the gender wage gap.
First, the gap systematically widens when inflation rises, regardless of whether it is driven by demand- or supply-side shocks.
Second, women revise their labor-market beliefs more pessimistically than men in response to these inflationary shocks, particularly concerning their own job prospects.
The authors propose a mechanism where women's pessimistic interpretation of inflationary shocks reduces their willingness to pursue nominal wage increases, thereby slowing their wage growth relative to men.
This mechanism is formalized in a two-agent New Keynesian search-and-matching model with imperfect information, where women form pessimistic beliefs about underlying shocks, reproducing the observed inflation-induced widening of the gender wage gap.
Beyond industry shifts: Wage-setting differences
The study uses the U.S. Current Population Survey (CPS) from 1982 onward to construct a monthly time series of adjusted gender wage gaps, controlling for worker characteristics, industry, and occupation.
Using a structural VAR model, the paper uncovers a clear pattern: inflation, regardless of its source, systematically widens the gender wage gap.
These results are robust, persisting in gender-balanced matched samples and within-individual wage growth comparisons, and are not driven by workforce composition changes.
Inflationary shocks account for 12–25 percent of the forecast error variance.
This suggests differences in wage-setting behavior, with men adjusting nominal wages more aggressively than women.
A novel link to inequality
This paper introduces a crucial, previously overlooked channel through which inflation exacerbates gender inequality.
By linking macroeconomic shocks to micro-level belief formation, it offers a compelling and robust explanation for persistent wage disparities.
The findings demand a re-evaluation of how inflation's costs are assessed, extending beyond aggregate purchasing power to include distributional impacts.