An equilibrium analysis of the gender wage gap

Within a two-sector general equilibrium model, women's productivity in the marketplace decreases with the amount of household work they perform at home. Assuming that men's and women's household labour inputs are complementary here we prove the existence of multiple equilibria. In some, men and women allocate their labour equally and earn identical wages. In others, they allocate labour differently and earn different wages. In this context, beliefs about the inferiority of women's productivity are shown to be self-fulfilling. By use of numerical examples, we show that welfare is highest when spouses allocate labour equally and suggest policy recommendations.