The Sexual Orientation Wage Gap: The Role of Human Capital, Occupational Choice, and Discrimination

In this paper, we explore the determinants of the sexual orientation wage differentials and why these differentials differ by gender. We utilize data from the 2000 U.S. Census to estimate log wage equations by sexual orientation and gender, and compare three alternative explanations for the wage differentials: discrimination, human capital differences, and occupational sorting. We find lesbian women earn more than their heterosexual counterparts irrespective of marital status while gay men earn less than their heterosexual (married and cohabitating) and married counterparts but more than their cohabitating counterparts. Using the Oaxaca-Blinder decomposition we find that differences in human capital (particularly education) accumulation is the main reason behind the observed wage advantages, while discrimination and occupational sorting play a minimal role at best. Wage penalties, on the other hand, are largely explained by unobservable characteristics (i.e., discrimination). Interestingly, while we do find there are some differences in the relative roles of our three alternative explanations across the wage distribution using the DiNardo, Fortin, Lemieux decomposition, the main conclusions from the OaxacaBlinder decomposition persist.