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Friday, January 9, 2015

Myth: Free Markets Exploit Women


A growing debate in the United States is that working women are exploited by a free labor market where they are paid, on average, significantly less than their male counterparts. Followed by this assertion is the conclusion that capitalism exacerbates the gender-wage gap and exploits women. As Curly, one of the Three Stooges, said in a famous skit, “I resemble that remark!”  

As a female economist in a male-dominated field, I am sympathetic to these concerns and most certainly know that while no markets are perfect, freed markets have done the best to help women increase their skills, education and overall comparative advantage as well as to allow them a space to offer their skills in the service of others.

How does this happen and what’s the evidence? 

Let’s start with the mechanics of how freed labor markets offer the best opportunities for women to prosper. The first necessary condition is equality before the law. In a world where women are not equal before the law and are not allowed to even show up for certain types or sectors of employment, the supply of labor is constrained. There are simply fewer people available to offer their labor when we eliminate half of the potential workforce. This has extremely negative and culturally-discriminatory effects and it also thwarts economic freedom. Firms aren’t as productive as they could be. It took hundreds of years for this to be established in the United States. In many countries women are still not equal and often held hostage under the law. For example, in Saudi Arabia it is illegal for women to drive and all women are required to have a male guardian, thus making work and employment costly and difficult. It is no accident that without equality before the law, Saudi Arabia ranks 127th of 136 in gender-wage parity.

The second necessary condition is a fluid supply of labor. That is, people need to be free to choose their profession. Those professions cannot be mired down with excessive regulatory burdens that act as barriers to entering the labor force. For example, needless licensing, excessive taxation, and burdensome regulations stifle entrepreneurship and labor participation. Making it costly to enter the labor force constrains economic growth and personal prosperity. When the process of competition unfolds, those who offer salaries in exchange for labor are forced to compete with other firms who are bidding for the same labor. In a society where women are free under the law to pursue employment in industries without excessive barriers to entry, what we see is a great equalization of pay between men and women.

What’s the evidence?

It is only when individuals can claim and keep the income we make without restriction that we can prosper. A freed labor market is precisely what allows this to happen. It has been empirically proven to be the best opportunity for women to unleash their creative talents on the world. It is why I got to choose to enter a math-heavy, male-dominated, PhD program. I was free under the law to choose my pursuit and it was then up to me to see if I could do it. I didn’t have to bribe anyone or have a male guardian or jump through gender-biased regulatory hoops. I just had to show up and do the hard work—with no guarantee of success. 

What is the result of a largely freed labor market? The most recent BLS report suggests that the result is an increasing trajectory of wage equality. Most of the 17.9% wage gap in the United States can be explained by number of hours worked, marriage and age. Women who work full-time and who have never married make 95.2% of male earnings narrowing the gender-wage gap to less than 5%. Married women with children work fewer hours which accounts for a large portion of the wage gap. 

The structure of the family is changing, including women having fewer children because of not having to worry about many children dying at birth or at very young ages, as was the case just a couple centuries ago. It is one thing to decide to have a big family, it’s another to have to have a big family because of death and the need to produce labor to work for the food you will eat. As prosperity has increased, the United States is wealthier, which gives women more direct control over how they will pursue employment. 

Institutions are changing as well. Now, more than ever, there are more options for tele-work and flexible hours which give women even more options as they make their own choices and manage the opportunity costs of family and work life. The bottom line is that the more women can voluntarily choose how much to work and when, the freer they are to pursue their chosen ends whether that choice is to stay at home with a large family or manage a full-time, corporate career. What is certain is for those women who want to work many paid hours and invest highly in education, there are more income opportunities in the highest quintiles than there ever have been.

Nonetheless, as St. Lawrence University economist Steven Horwitz argues, some good reasons exist for what some are quick to label “discrimination”:

Men who go to college are more likely to have majors that generate higher pay (such as computer science and engineering), while women tend toward psychology and education, which do not pay as well. Women are more likely than men to interrupt their careers to care for children. Women (and men) who do so tend to fall behind their cohort in job experience and in keeping current in their profession. Their wages thereby fall behind their cohort’s and are lower than they would have been had they not cared for the kids. All choices that affect human capital also affect wages, so discrimination in the marketplace is not required to explain pay differentials.

Forbes reported in 2014 that there have never been as many Fortune 500 female CEOs as there are now—24 in total, and that is up 4 in just one year, so the future for women business leaders is bright. In my own graduate program, there have never been more talented women pursuing PhD’s as there are now, and they are completing their degrees and getting incredible academic placements.

The hope for women everywhere is equality before the law and a freed labor market. Does some institutional discrimination still exist?  Of course, but the quest for profit among firms makes them accountable to market signals about hiring the best employee for the job at hand. Over time, this reduces discrimination by penalizing it (employers who engage in it lose valuable employees to competing businesses and opportunities). A freer world is a better world for everyone. 

The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government. See the index of the published chapters here.

#39 – “The Free Market Exploits Women”

(Editor’s Note: Dr. Bradley is Vice President of Economic Initiatives at the Institute for Faith, Work and Economics — www.tifwe.org.)

Summary

  • The freer the market, the more opportunities there are for women (and anyone else, for that matter) to progress up the economic ladder.
  • Most of the 17.9% wage gap in the United States can be explained by number of hours worked, marriage and age. Women who work full-time and who have never married make 95.2% of male earnings narrowing the gender-wage gap to less than 5%.
  • For those women who want to work many paid hours and invest highly in education, there are more income opportunities in the highest quintiles than there ever have been.
  • For further information, see:

“Markets and the Gender Wage Gap” by Steven Horwitz: http://tinyurl.com/l9uj7wg

“Equal Pay Day: Some Thoughts” by Steven Horwitz: http://tinyurl.com/lxrubgt

“Is the Job Market Sexist?” by Corey Iacono: http://tinyurl.com/nvhvcc8

“Free Markets are a Woman’s Best Friend” by Steven Horwitz: http://tinyurl.com/qffvdgz

“Are Women Being Victimized by the Market?” by Lawrence W. Reed: http://tinyurl.com/nktgymn

 

 


  • Dr. Bradley is Vice President of Economic Initiatives at the Institute for Faith, Work and Economics.