Tuesday, April 9, 2013

Are Women Really Paid Less Than Men?: Demystifying the Gender Wage Gap

Lies, damned lies, and statistics. What a great Mark Twain phrase. I love how he points out how trying to impress people with numbers, especially those yanked from their context, can give a false sense of reality. That certainly comes into play today, which happens to be Equal Pay Day. The premise behind Equal Pay Day is to close the wage gap in which "women make 77¢ for every dollar a man makes" (Census, p. 5). Being libertarian, I believe in the equal treatment of individuals under the law, regardless of gender. Shouldn't I be outraged that women are being subjected to this labor market discrimination?

I'm not disputing the 77¢ statistic itself. What I am disputing is distortion behind the statistic, mainly done via an omitted variable bias. What the statistic does is the following: First, it aggregates the salaries of all women and divides it by the number of women in the labor market. Second, the salaries of all the men are then aggregated and divided by the number of men in the labor force. The numbers are then expressed in the ratio of 77:100, and voilĂ , "women make 77¢ for every dollar a man makes." The issue is that the statistic is an apples-to-oranges comparison. Why? It assumes that women invest and utilize their human capital in the exact same way that men do. To make the findings more accurate, one would need to compare two similarly-situated co-workers of different sexes with the same skill set and background who are working in the same industry and doing the same work for the same amount of hours.

Before I outline my argument, I would like to postulate how I find the argument to be intuitively problematic. The rhetoric I hear often on the Left is that businesses are greedy, which would mean that ultimately, an employer cares about the bottom line. Let's also assume that male chauvinism is the primary, or even the sole, factor in the depression of female wages. If I were an employer in this scenario, would I pay a man to do a certain job, or would I pay a female a fraction of the cost to do the same exact job? If I ultimately cared about profit maximization, you better believe that I would enjoy a huge advantage over my competitors by replacing as many of my male employees with female ones so I could increase my profit margins.

Now let's lay out some reasons as to what makes the raw wage gap so different from the actual wage gap:

Educational attainment and occupational choice: Although more women are acquiring college degrees than men, women still select career fields that pay less (e.g., nursing, education, clerical work) than men do (e.g., sciences, business, law). Women have a better sense of work-life balance, which is why they tend to choose jobs that have more regular hours and have more comfortable conditions, whereas men gravitate towards jobs that have more erratic work hours an involve more risk or specialization, which result in better pay. The Federal Reserve Bank of St. Louis postulates that this selection of career fields is the primary factor behind the wage gap.

Labor force attachment: According to the Bureau of Labor Statistics, men have a higher participation rate in the labor market than women. Furthermore, men are more likely to work full-time, whereas a larger proportion of women work part-time. Even assuming that wages are equal, the gap in weekly earning is going to be sizable since women work less hours (American Time Use Survey, BLS, Table 1). What is biggest factor in this wage-hour gap? Motherhood. It might be 2013, but women are still predominantly responsible for raising children. Since childrearing engenders a weaker attachment to the labor force, women are employed in jobs that require less capital and on-the-job training.  

Postscript: This is not to say that sexism does not exist or it doesn't play a role in the gap. It does, but it plays a relatively small role in explaining the raw wage gap. Much of the gap can be explained by such factors as occupation selection, experience and length in the workplace, as well as hours worked, as is confirmed by a study (p. 2) recently published by the feminist group American Association of University Women (AAUW). This study shows when these factors are taken into account, the wage gap closes to about 94¢ for every dollar a man makes. A study commissioned by the U.S. Department of Labor comes to a similar conclusion. It is also why Politifact pointed out that the 77¢ claim is "mostly false."

Some would like the government to intervene in closing the reminder of the wage gap. Government's good intentions in this case would lead to more regulations, red tape, and frivolous lawsuits. There are ways that these issues can be solved in the free market. If pay is that much of an objection, females can be encouraged to pursue careers in business or the STEM (science, technology, engineering, and mathematics) field to counter the cultural stereotypes (Blau and Kahn, 2000). Fathers can take further responsibility for child-rearing, or alternatively, employers can provide better family-leave and child-care policies. We should empower women to make whatever lifestyle or career choices they like, but let's not pass faulty legislation such as the Paycheck Fairness Act in hopes that the government can attempt to fix a problem that by and large does not exist.

12-4-2016 Addendum: Using 2015 Bureau of Labor Statistics data, the American Enterprise Institute finds that once you control for such factors as age, hours worked, marital status, and having children, the gender wage gap is all but nonexistent.

8-1-2017 Addendum: The American Enterprise Institute provides a nice, concise list of 20 reasons why the wage gap is all but nonexistent.

1 comment:

  1. very interesting. too bad people choose to hear the crap they get spoonfed all the time by mainstream media