The Equal Pay Act as an Experiment to Test Theories of the Labour Market

Abstract

The UK Equal Pay Act of 1970 resulted in a large rise in the relative earnings of women in the early 1970s. As this change (unlike most wage changes) was largely exogenous to employers, one can think of this episode as an experiment for testing different theories of the labour market. Hence, study of the effects of the Equal Pay Act should be given considerable weight and is likely to have wider implications about the operation of labour markets. Most models of the labour market used by economists assume that employment is demand-determined at least after a large positive shock to the wage. These models would predict that female relative employment should have fallen after the introduction of the Equal Pay Act. Yet, it is hard to find evidence of this. This paper argues that female relative employment did not fall because the female labour market is, in part, monopsonistic.