All Commentary
Tuesday, December 2, 2014

Is the Job Market Sexist?

Or do wages reflect the choices we make?

Is it an embarrassment that women are paid so much less than men? That’s what the president says. Over and over.

“Today, the average full-time working woman earns just 77 cents for every dollar a man earns,” President Obama reported in a speech back in April. “In 2014, that’s an embarrassment. It is wrong.”

But what’s wrong is the claim itself — or at least what Obama and his fellow Democrats regularly imply that the numbers mean. What we are supposed to be embarrassed about is the way the market discriminates against half the population. Isn’t it unfair that women make so much less than men do, and for the same work?

Behind the differences in pay are a number of straightforward reasons that we should understand before attributing the problem to sexist employers.

While the 77-cent figure is technically true, the statistic does not account for occupations held, hours worked, length of tenure, or marital status, which are all factors that influence the wage an individual earns. Indeed, given the differences in the occupational choices of men and women, there is good reason to expect men to earn more on average. According to the Federal Reserve Bank of St. Louis,

Men are more likely to be lawyers, doctors and business executives, while women are more likely to be teachers, nurses and office clerks. This gender occupational segregation might be a primary factor behind the [gender] wage gap.

Other choices also affect the numbers. “Indeed,” writes Glenn Kessler in his Fact Checker blog for the Washington Post, data from the Labor Department’s Bureau of Labor Statistics “show that women who do not get married have virtually no wage gap; they earn 96 cents for every dollar a man makes.”

Using data from a sample size of over 74,000 men and over 72,000 women in dozens of industries and in nearly two dozen occupations, and after accounting for many of the aforementioned wage determinants, a study by CONSAD Research Corporation found that the gender wage gap narrowed to 5–7 percent. However, even this remaining wage gap is not in itself evidence of systematic discrimination. The authors only examined wages and not overall worker compensation  — a combination of wages and benefits — and they make an important note: “Research indicates that women may value non-wage benefits more than men do, and as a result prefer to take a greater portion of their compensation in the form of health insurance and other fringe benefits.”

In other words, there is evidence that women prefer benefits to cash, which the gender wage gap completely ignores. The authors also state that they did not account for work experience or job tenure, and that these factors likely explain the remainder of the gap:

This study leads to the unambiguous conclusion that the differences in the compensation of men and women are the result of a multitude of factors and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of the individual choices being made by both male and female workers. [Emphasis added.]

Proponents of the belief that a wage gap does exist often counter this research with other studies that insist that a large wage gap does exist, even after accounting for other explanatory variables. However, none of these studies has been as comprehensive as the CONSAD study and, more importantly, almost all of them fail to examine nonwage earnings like employer-provided health insurance. In fact, the Federal Reserve Bank of St. Louis has noted,

Some researchers believe that it is not enough to compare wages of similar men and women. They argue that total compensation (wages together with benefits) must be compared. Women of child-bearing age may prefer jobs with a lower wage but with employer-paid parental leave, sick leave and child care to jobs with a higher wage but without such benefits.… Economists Eric Solberg and Teresa Laughlin applied an index of total compensation, which accounts for both wages and benefits, to analyze how these benefits would affect the gender gap. They found a gender gap in wages of approximately 13 percent. But when they considered total compensation, the gender gap dropped to 3.6 percent.”

According to the study cited by the Federal Reserve economists, “any measure of earnings that excludes fringe benefits may produce misleading results as to the existence, magnitude, consequence, and source of market discrimination.”

Beyond the above considerations, there is reason to doubt that the remainder of the wage gap is due to discrimination. According to a recent study published in the American Economic Review by Harvard economist Claudia Goldin, the gender wage gap exists because of the differences in the particular hours men and women choose to work. According to Goldin,

The gap exists because hours of work in many occupations are worth more when given at particular moments and when the hours are more continuous. That is, in many occupations earnings have a nonlinear relationship with respect to hours. A flexible schedule often comes at a high price, particularly in the corporate, financial, and legal worlds.…

The gender gap in pay would be considerably reduced and might even vanish if firms did not have an incentive to disproportionately reward individuals who worked long hours and who worked particular hours.

While discrimination against women (or men) may exist in particular circumstances, the bad news for advocates of greater government intervention in the workplace is that there doesn’t appear to be any solid evidence of a meaningfully large gender pay gap. Indeed, what’s left of the gender wage gap that isn’t explained by common wage determinants is likely a result of factors that simply haven’t been accounted for.

The good news for the interventionists is that few will look too deeply into what is behind the numbers. Nor will they question the government’s role in engineering a rigid equality to replace the market’s flexible response to diverse individual preferences in balancing work and home life. 

  • Corey Iacono is a Master of Business graduate student at the University of Rhode Island with a bachelor's degree in Pharmaceutical Science and a minor in Economics.