GENDER W AGE DIFFERENTIAL AND DISCRIMINATION IN AZERBAIJAN

According to World Data Bank [CITATION Tem19 \n \t \l 1033 ] research on female employment in
South Caucasus, women comprise approximately half of the labor force and the share of female workers
with tertiary education is almost the same as the share of males with tertiary education in the region.
Albeit having the same educational background, there exist abnormal disparities in wages between males
and females in the same location [CITATION The16 \t \l 1033 ]. Azerbaijan’s Constitution explicitly
points out the equality in rights of women and men supported with other normative acts supporting and
promoting equality [ CITATION The20 \l 1033 ]. However, the report published by Europe and Central
Asia on Gender Equality [ CITATION Int16 \l 1033 ] presented summary statistics on the gender wage gap
across world countries, with salaries ranging from 10% in Slovenia to 50% in Georgia. As for Azerbaijan,
the gender wage gap totaled 36% which ranks the country at the higher end of the distribution. The
possible reasons behind this much gender-based disparity are the lack of relevant policies supporting
women during the childbearing, early marriage of women relative of men, and the country is bereft of
other female-supporting mechanisms [CITATION Pas10 \t \l 1033 ]. Concurrently, the research conducted
by [ CITATION Oli16 \l 1033 ] indicates that the gender wage gap is narrowing which is associated with
improvements in human capital characteristics of women, the accessibility of childcare, medical advance,
and proclivity in employing more women than men. To scope in Azerbaijan, there has not been conducted
any empirical research estimating gender wage discrimination so that this research is pioneering in
specifying the determinants of nominal wage in Azerbaijan and the wage gap associated with
discrimination. The paper refers to the findings of other researchers for estimation of the gender wage gap
in other countries and incorporates the patterns to the case of Azerbaijan. Unlike previous research on this
topic, the paper tries to gauge the discrimination not only for few years but the wage gap in the 21st
century in Azerbaijan. Previously, the research on the gender wage gap in Azerbaijan was restricted by
only qualitative analysis with referral to general statistics and with no mention about the women wage
determinants (Pastore, Sarosh, Sinha, & Tiongson, 2016; Klaveren, Tijdens, & Hughie-William, 2010;
Kitarishvili, 2014). The paper utilizes the wage discrimination method devised by Blinder [CITATION
ASB73 \n \t \l 1033 ] and Oaxaca [CITATION ROa73 \n \t \l 1033 ] which reveals the productivity and
discrimination-caused disparities in the nominal income of males and females. Years of education, marital
status, location of residence were found to have a significant impact on the wage which creates a wage
gap associated with productivity difference between males and females [ CITATION Nor06 \l 1033 ]. The
study conducted by Amyra Grossbard [CITATION Gro93 \n \t \l 1033 ] concluded that the first marriage
age is negatively correlated with monthly income. What’s more, the impact of the first marriage age on
the wage gap in developing countries was found to be the highest [ CITATION Lou02 \l 1033 ]. Also, it is
the common practice that the monthly earnings of urban, rural-urban, and rural residents are unmatched
which is also reflected in the findings of many scholarly works (Phimister, 2004; Wheaton & Lewis,
2002; Sharge & Darity , 2016). There are other variables that are believed to have an impact on gender
wage differential which are left out of the scope of this paper because of the lack of sufficient data for
Azerbaijan thereby the paper backs up its findings with the literature mentioned in the context of this
research. As discussed in the lecture, the difference in wages may arise even in a labor market where the
firms are not prejudiced. The paper delineates the discrimination in employment as if wm wage for male
worker and as well as the cost of hiring male worker equal wf wage for female multiplied by (1+d)
discrimination coefficient. Eventually, the firm would like to hire the segment with the lowest cost, so the
indifference point is when wm=wf(1+d). The discriminatory firm would hire female workers up to the
point where wf(1+d)=VMPE.

2. Data and Methodology

The data employed in the study cover the years from 2000 to 2020 and was collected from various
national and global statistics bureaus. The data on the nominal wage of both female and male was
retrieved from the labor market statistics of the Azerbaijan State Statistical Committee [ CITATION
AZS20 \l 1033 ], the indicators of education of both genders, first marriage age, and the share of men and
women residing in urban areas were retrieved from gender statistics of The World Data Bank [CITATION
Wor19 \n \t \l 1033 ]. Due to a lack of data on gender statistics, it was nearly impossible to include all
the variables that affect nominal wage. Yet I have tested the significant ones and the relationship between
them found to be weighty. Usually, the economists use pooled data for one specific year to conduct the
Oaxaca decomposition model of gender wage gap estimation. However, due to a lack of interest and
proper research in this area in Azerbaijan, I used the yearly average values for our dependent and
independent variables covering the years from 2000 to 2020. To be able to apply this data to Oaxaca
decomposition, the years were listed in a way that they represent one body (e.g. the nominal wage in 2020
for the female is considered as a separate body with its education, marriage, and residence location
values; similarly, male average statistics in 2000 is another observations of one body and so on).
However, as we have transformed Time Series data to pooled survey data, we still need to check for
assumptions of the time series regression model. The regression functions utilized in the research are as
follows: ln(wagefemale)= β0 + β1 urbanfemale + β2 marriagefemale + β3 primaryfemale + β4

postsecondaryfemale + ut and ln(wagemale)= β0 + β1 urbanmale + β2 marriagemale + β3 primarymale +

β4 postsecondarymale + ut, where ln(wage) represents the natural logarithm of nominal wages expressed
in Azerbaijani manats, urban– urban population as percentage of the group, marriage- age at first
marriage, primary- education attainment, at least completed primary schooling as a percentage of the
group, postsecondary-education attainment, at least completed post-secondary education as a percentage
of the group from 2000 to 2020. Command <<tsset year>> was applied to account for trending behavior
of our variables. The White Test has been applied to check for homoskedasticity, otherwise the having
heteroskedasticity would make our coefficients biased. We failed to reject the null hypothesis of having
homoskedasticity with p-value of 0.44 implying we have constant error variance. Additionally, the error
terms were observed on a plot, Goldfeldt-Quant, and Breusch-Pagan tests were utilized and we failed to
reject the null hypothesis of homoskedasticity at 99%, 95%, and 90% confidence intervals. Thereafter, the
Dickey-Fuller test was applied to check for stationarity. Stationarity is one of the most important
assumption of the time series regression to have unbiased estimators, and we failed to reject the null
hypothesis of random walk. Moreover, the Phillips-Persons test was employed and the findings indicated
the absence of serial correlation and heteroskedasticity in residuals of the both regression functions we
have. Now, after checking for OLS assumption, we can rely on our estimates.

3. Results
The <<oaxaca …, pooled>> command was
used to see the wage gap due to discrimination
and productivity differences. In our case,
group_1 stands for male and group_2 for male.
The coefficient of group_1 is the mean of log
wages which is 5.44 for male and 4.90 for
female, yielding a gap of 0.545 as displayed in
the coefficient of difference component. The
difference between wages equaled to 10%,

I have created a dummy variable for gender,

wherein female workers are marked with 1, and male- 0. As our primary goal is to estimate the explained
and unexplained difference in wages of both groups, we ignore the inflation rates, oil price shock, and
other political factors. The reason why the model does not account for the aforementioned factors is that
in case of crises it would affect both male and female wages, and the wage differential will not be
affected by any external event. So, we can bravely rely on the wage gap estimates. As it can be observed
from the attached regressions, the urban population as a percentage of male and female is a significant
variable with a p-value of 0,02 for men and 0.033 for women. As stated in the literature of the paper,
being an urban resident is positively correlated with the nominal wage. Concurrently, age at first marriage
is negatively correlated with the nominal wage for both males and females yet the effect of marriage on
males’ wage does not find its justification in the literature. The adjusted R-squared is quite high to
conclude that the dependent variables explain the behavior of the independent variable (0.9524 for male
and 0.9145 for female). The reason I have added only two educational variables such as primary
schooling and post-secondary is that when adding the variables such as bachelor degree attainment or
 secondary school attainment, the adjusted R-squared were declining and the p-values become

insignificant.
of what 22% is explained and 78% is unexplained. Our model estimates the wage gap due to education,
marriage age, and location of residency to be 22%, and the wage gap due to discrimination to be 78% for
Azerbaijan from 2000 to 2020. This number is the way higher than the global statistics on Azerbaijan
(36% in 2011) but unlike the overall statistics, our model manages to estimate the discrimination-caused
wage differential in whole 21st century in Azerbaijan. We can bravely state that the scope of our findings
exceeds the findings of all researchers for Azerbaijan.

4. Conclusion and Policy Recommendations

As argued in the book [CITATION Bor15 \p 386 \l 1033 ], the critics tend to find flaws in all Oaxaca
computed analysis by saying that to gauge the exact discrimination one should take into account all
variables that affect the nominal wages. Most of the research fails to encompass all the variables in line
with our research; however, we can justify our limitations by lack of data for gender statistics in
Azerbaijan. We are happy to observe that the wage gap diminishes over time and one reason for that
can be increased participation of women in labor markets. Another reason can be the better
enforcement of the Azerbaijani Constitutional act based on gender equality in the workplace.
Government should further take affirmative action to ensure that the firms do not discriminate. An
example delineated in the book (Borjas, 2015, p.395) depicts the case when affirmative action was
successful among manufacturing firms in South Carolina in the employment of black workers. Albeit
little evidence of the effect of affirmative action on creating male-female-balance in employment was
observed, we believe that it would yield the desired results in Azerbaijan.

As explained in the book (Borjas, 2015), the discrimination moves

away from the firm from the cost-minimizing outcome, and the
Female labor Figure 1: Discriminatory firm
input mix does not coincide on the point where the isocost line is
tangent to isoquant. The affirmative action mandate by the
government is the common practice to fight discrimination in the
labor market, and Figure 1 depicts the case wherein affirmative
. . q* action makes the discriminatory firms better off by moving to the
lowest isocost.

Male labor
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