Use Of The Human Capital Theory Sociology Essay

Human Capital Theory advanced by Backer (1985) states that individuals are rational beings. Therefore, they make choices to invest in human capital (i.e. education and training) in order to increase their productivity in their jobs thereby future earnings. Individuals with higher productivity are rewarded with higher pay (i.e. those who have invested in human capital will receive higher wages because wage is the reward given for the use of labor productivity) (Becker, 1985). Similarly, it is assumed that as number of years in work increases, it increases the level of skill through experience. Hence more experienced workers will be more productive and will have higher pay.

Selectivity Hypothesis

The second explanation for the marriage premium is put forwarded by the Selectivity Hypothesis which states that men with higher earnings and higher productivity potential are likely to marry because they are valued more in the labor and marriage market (Backer, 1985; Ginther and Zavodny 2001). Nakosteen and Zimmerman (1997) interpret the observance of higher wages for married men as an effect of the mate selection process done by women. Therefore, men with higher earnings are more often selected for marriage. For men, their likelihood of marriage depends on their earnings and some personal traits (Chun and Lee, 2001). The attributes that lead to success in the workplace (responsibility, honesty, dedication etc.) overlap with the attributes that lead to success in finding and keeping a spouse (Backer, 1985; Ginther and Zavondy, 2001). As men with higher income are also less likely to divorce than those of men with lover income (Waite and Galladher, 2000), male with higher incomes are most likely to get married and when married, less likely to divorce, therefore likely to have higher earnings than unmarried men. However, the Selectivity Hypothesis does not explain why women are likely to be married. If high earnings or financial security increases the value of men in marriage market, the women with high earnings or with higher productivity potential are likely to defer to marry or prefer not to marry. However, increasing egalitarian gender-role attitudes may mitigate this hypothesis and as stated by Waite (1995), there are other significant benefits of marriage for women.

Productivity Hypothesis

This hypothesis is based on the role of traditional household specialization or division of labor by sex where men are assumed to join workforce whereas women are assumed to go in domestic labor. Therefore, men are regarded as more productive in labor market as they have spend more time to their career and labor market goals (Chun and Lee, 2001). Furthermore, married men have more commitment to their jobs, they are seldom fired and frequently promoted, and in addition receive a larger share of the profits distributed according to individual performance (Backer 1985). Backer (1985) states that men have competitive advantage in labor market whereas women have competitive advantage in household work. In this regard, the unmarried or single men have to specialize in both the labor market and household works, which causes them to exert more time and energy. Waite (1995) also suggests that married men are likely to be benefited from both economic and social benefits.

This hypothesis is not able to explicitly explain the marriage premium for women. The empirical studies that investigate the emerging adults’ work and family commitments (Brielby and Brielby, 1989; Brown and Dickman, 2010) reported that college men and women were equally committed to work and family. Stickney and Konrad (2007) found that women with egalitarian attitudes (career-oriented and independent) have significantly higher earnings than women with traditional attitudes (family oriented and dependent on their men). However, does marriage increases the productivity of women? Treas and Widmer (2000) state that married women likely to prefer to stay at home or part-time work once they have preschool child and they prefer to go back to full time work only after the children leave home. This discontinuation at work and preference over part-time work may reduce the productivity of married women. Some studies observed that women are penalized for their motherhood by underestimating their competencies and by paying lower starting salaries (Peterson and Morgan, 1995; Corell, Benard, and Paik, 2007). Byron (2010) also suggests that pregnant women are penalized for their promotions and discriminated for firing. As married women at work are likely to be pregnant as of their motherhood, they are likely to suffer from low paid or unpaid works.

Summarily, the individual models emphasized the individual level characteristics, like level of education and training, work experience, and behavioral traits as factors influencing earnings inequality between married and unmarried women.

2.2 Structural Approach

Structural approach believes that individuals are shaped by the bigger structures of society. Structural theories focus on the interrelationships between the larger social structures or institutions of the society, and also how these structures and institutions affect individuals in the society (Ritzer and Goodman, 2004). However, in structuralism conception, individual is not the subject matter of analysis in both research and theory construction, and psychological interpretation of human behaviors is not entertained in sociological understanding (Mayhew, 1980). Thus structural approach argues that earnings inequality is a structural phenomenon, and it is determined by the organizations and organizational structure. The job positions in organizational structure are based on an organizational hierarchy often owner, managers and workers, in descending order, where positions towards the top receive higher wages than positions towards the lower hierarchy. Furthermore, Coverdill (1988) states that wages are affected by the structure of the market where the company is operating. There are two models of the structural approach that explain the wage difference – Dual Economy Theory and Segmented Labor Market Theory, which are explained below.

Dual Economy Theory

The dual economy theory assumes that the economy is not homogenous and, therefore, can be divided into monopoly sector and competitive sector (Gordon, Edwards, and Reich, 1982). Sorting of a particular firm in either of the category depends upon the nature of business, size of the firm, industrial location, and market concentration (Tolbert, Horan, and Beck, 1980). In monopoly sector or concentrated markets, the company will have high profit therefore employees in the monopoly sector earn higher wages, have better benefits, more opportunities for mobility, and greater work satisfaction than employees in the competitive sector (Reid and Rubin, 2003). In addition, the monopoly sector requires a stable and trainable workforce, which means education and work experience are the important aspects of gaining entry into the monopoly sector (Coverdill, 1988). In contrast, the competitive market contains small firms with limited markets, low wages, little or no training and skills, minimal job security, and limited career development opportunities (Reid and Rubin, 2003). Hodson (1983) further states that monopoly firms have higher rate of unionization than competitive firms which may lead to higher wages and greater benefits being provided to workers.

While linking these theoretical explanations with the marriage premium, as married men are preferred by employers, married men are likely to be attracted to and employed by the monopoly sector then unmarried men. The attraction of married men in monopoly sector is also linked with prestige, higher pay and benefits. Coverdill (1988) states that women get more job opportunities in the competitive markets than in the monopoly markets because of some institutional barriers created by firms in the monopoly sector. By understanding these explanations, and considering changing labor force and market structures, unmarried women are more likely to work in the monopoly sector and earn higher wages then married women who because of their household responsibilities are likely to be found in less challenging, flexible and part-time works.

Segmented Labor Market Theory

Another structural explanation for earnings inequality is explained by the Segmented Labor Market theory. The theory states that there are different job markets and different job professional works in different job markets. These different job markets are often segmented based on occupation, geography and nature of industry. The occupational labor markets arise from the division of labor, increasing differentiation and specialization. Since each occupational labor market requires specific skills and knowledge, the workers are less likely to switch in to another occupational labor market. It also applies in geographic market segments and industry-wise market segments. Therefore, this theory suggests that wages are directly related to professions and positions in the labor market, not to the workers attributes (Weitzman, 1989). The employees at so called white-collar professions and white-collar positions are liked to have higher earnings than employees at so called blue-collar professions and blue-collar positions. This theory further segregates labor markets into primary labor markets and secondary labor markets. The jobs in primary labor market were characterized by higher wages, better working conditions, more stable employment, and higher return to human capital (Weitzman, 1989). These explanations indicate higher job opportunities in primary labor market for married men then unmarried men and women. The empirical literature that examines income inequality across different professions, particularly white-collar, professional women experience the largest gender wage gap within similar job rank and similar profession. The disparity emerges quickly with a small gender wage gap among college graduates then widens over time as women’s professional careers progress (Peterson and Morgan, 1995). The research on lawyers (Noonan, Cocoran, and Courant 2005), physicians (Boulis and Jacobs 2003), scientists (Prokos and Padavic 2005), financial professionals on Wall Street (Roth 2003), and faculties in higher education (Toutkoushian 1998) indicate that women are earnings less than their men counterparts.

With reference to above explanations the unmarried women or single women are likely to have higher earnings then married women. The unmarried women tend to have higher investment in education and skill development for better career opportunities which make them success in white-collar professions and positions. Boston (1990) states that having never been married is one of the most significant factors in determining the likelihood of upward mobility from blue-collar to white-collar positions and profession.

To sum up, the structural models suggested that occupational level and type, market structure and labor market conditions are responsible for earning difference.

2.3. Gender Level Model

In addition to individual and structural approach, the gender theories explain the earnings inequality between men and women. The gender models state that women are devaluated at work and often sorted for particular segment of work or occupation so-called pink collar jobs (South and Spitze, 1994). Women are made responsible for household work whereas men look over external affairs (i.e. jobs, earning). This separation of women from labor force systematically discriminates on women’s earnings (South and Spitze, 1994). Similarly, employers use gender, race and individual’s background as a job screening mechanism (Gupta, 1993). For example, women are likely to be sorted into clerical and secretarial jobs. Women are thought to have better skills for these jobs compared to men. As a result women receive less pay than men. The discrimination also applies to race and ethnicity. Employers may have certain rank of preference for appointing and promoting employees for job type and job position (Gupta, 1993). Women receive lesser preference on high pay and high ranking positions (Beggs, 2001).

The Gender theories can also be used to explain the earning differences between married and unmarried or single women. Corell, Benard, and Paik (2007) state that mothers experience disadvantages in the workplace in addition to those commonly associated with gender. The women engage more in household works. The household responsibilities further increases as they get married, and become a mother. Furthermore, literature suggests that there exist motherhood wage gap and factors such as reduced investment in human capital by mothers, lower work effort by mothers, and discrimination against mothers by employers are responsible for lower earnings of mothers compared with non-mothers (Corell, Benard, and Paik, 2007). Therefore, these gender based attitudes, functions and responsibilities make married women less pay at work.

3. An Alternative Model and Research Hypotheses

The individual models state that individual characteristics such as education and skill, work experience, and behavioral traits (honesty, commitment, etc.) are important factors explaining wage differences whereas structural models state that structural variables like job position (rank), occupation, and market structure are important factors to explain this wage gap. The gender models further state that the bias towards particular gender, race or ethnicity, and marital status is important reason for wage differences. Since these models individually are not sufficient to explain wage gap between married and unmarried women, this thesis attempts to synthesize individual models, structural models and gender models, and proposes an alternative model for earnings inequality.

The alternative model presented in Figure 1 above shows that individual level characteristics like level of education, work experience determine the level of earnings of individual. This relation is further affected by gender issues like sex, race, ethnicity, marital status, etc. as explained by gender theories. The structural variables like occupation level, industry, etc. determine the level of earnings as explained by structural theories. The structural variables may also have influence on relationship between individual level characteristics and level of earnings. Furthermore, as explained by gender theories, gender issues also influence the structural variables thereby the level of earning.

Figure 1. Alternative Model

Independent Variables Dependent Variable

Individual level variables

Education

Work experience

Structural variables

Job position Wage gap (women)

Job occupation

Gender/Race variables

Gender

Race

Marital status

As explained by individual theories, individuals having higher education qualification, and more work experience will have higher earnings than individuals with lower education qualification and lesser work experience. Similarly, as explained by structural theories, individuals working higher position in job hierarchy and working in white-collar professions will have higher earnings. Furthermore, as stated by gender theories, unmarried women will attain higher job positions in organizational hierarchy. When mapping these relationships, unmarried women tend to invest more in human capital, tend to be sorted for higher positions and white-collar professions, and tend to have less household responsibilities. Therefore, unmarried or single women tend to have higher earnings than married women.

The following hypotheses are formulated and will be tested in this thesis.

Hypothesis 1a: Net of other factors, with an increase in level of education, there will be an increase in earnings.

Hypothesis 1b: Net of other factors, with an increase in work experience, there will be an increase in earnings.

Hypothesis 2a: Net of other factors, the higher the position in hierarchy of jobs, the more earnings.

Hypothesis 2b: Net of other factors, high-skill occupations will have higher earnings than that of low-skill occupations.

Hypothesis 3a: Net of other factors, unmarried women will attain high-skill occupations than married women.

Hypothesis 3b: Net of other factors, unmarried women will have higher earnings than married women.

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