Seemingly baseless discrimination

We show that rational profit maximizing firms can find it optimal to wage discriminate against females even though females and males are identical in all respects. Specifically, we argue that a pay gap can emerge naturally as discrimination against females, in the first place, can endogenously affect the elasticity of labor supply and can make the supply of labor of males less elastic and the supply of labor of females more elastic. Furthermore, we note that once this endogenous change in elasticity emerges it in fact makes discrimination optimal and allows discrimination to materialize in equilibrium. Moreover, we show that discrimination against females is detrimental to the overall welfare and in addition it negatively affects wages of males. Consequently, we argue that an equal pay mandate would benefit both genders as in our model there is no tension between females and males, but there is an endogenous extraction of surplus from workers by employers. The key mechanism described in the paper extends naturally to the product markets and can serve as rationalization of the prevalent pink-tax.