UNDERSTANDING THE GENDER WAGE GAP IN THE FORMAL AND INFORMAL SECTORS OF THE GHANAIAN ECONOMY

This paper investigated how gender wage inequality varies across formal and informal enterprises in Ghana. Applying a multinomial logit model on the data set of the seventh round of the Ghana Living Standard Survey (GLSS 7), we found that individual and household characteristics have gendered differential effects on the probability of working in the formal and informal wage sectors. We observed that while the likelihood of working in the formal sector increases for both men and women with higher levels of education, the opposite is the case for higher levels of education in the informal wage sector. Using the Dubin-McFadden (DMF) and Lee control function approaches to control for both observable characteristics and endogenous selection bias in formal and informal jobs, it was observed that while the raw gender wage gap in formal employment is overestimated as a result of the observable characteristics and selection process, that of the informal sector tends to be underestimated for the same reasons. In both formal and informal employment, we observed gender wage discrimination against women. This therefore indicates the importance of enforcing regulations against gender discrimination and expanding regulated formal employment to accommodate more women in the effort to reduce gender wage gaps in Ghana.