The rate of return to education and the gender earnings differential: A comparison of the United States and the Republic of Ireland

International evidence shows that while the size of the gender earnings differential varies across countries, the U.S. and Ireland seem to have some of the largest differentials among western European and Scandinavian countries. There are several possible factors including differences in the prices of labor market skills, differences in the quantities of labor market skills, and differences in unobservable factors between men and women in the U.S. and Ireland that prevent the reduction of the gender earnings differentials in the two countries. The aim of this dissertation is to measure and analyze the separate components of the gender earnings differentials including a decomposition of the residual for both the U.S. and Ireland to determine what is impeding wage convergence within each country. Three models are used: the first estimates the rate of return to education; the second determines the gender earnings differential; and the third decomposes the gender earnings differential residual into predicted and residual components using a decomposition of the cross-country gender earnings differential for the U.S. and Ireland. The findings indicate that both the U.S. and Ireland experienced an increase in the rate of return to education for women which has been shown to have a significant impact in narrowing the gender earnings differential. Additionally, the results indicate that the level of wage inequality in both countries is decreasing between 1987 and 1993. In the U.S., the result of the decrease in the productivity and discriminatory differentials combined with an increase in the mean female percentile in the male wage distribution caused a substantial narrowing of the gender earnings differential between 1987 and 1993. However, in Ireland, gender-specific factors play an important role in the gender earnings differential, and, as a result, even though the productivity differential decreased along with an increase in the mean female percentile in the male wage distribution, the discriminatory differential increased which prevented a significant narrowing of the gender earnings differential between 1987 and 1993.