Abstract We construct a competitive model that explains the gender pay gap per hour by a statistical discrimination mechanism based on unobserved effort provided by men and women in accordance to an intrahousehold division of labor in which only women engage in child rearing activities. For unskilled labor an additional physical endowment effect arises and increases the pay gap against women. The model explains several empirical regularities in the literature of regression analysis. We show empirical evidence for Colombia and the United States that is consistent with the predictions of the model. Further, we study an equal parental leave and equal pay for equal work policies and find conditions for these policies to be effective at reducing the pay gap.
