The equal-pay debate

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Article Highlights

  • Some gender discrimination in the labor market certainly does exist. But the best solution isn’t more lawsuits.

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  • What female workers need is a vibrant and competitive workplace, since it is competition that weeds out discrimination.

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  • Women need more markets, more enterprise, and more opportunity, not more regulation and litigation.

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During his re-election campaign in 2012, President Obama claimed that women working full-time are being paid 23% less than men for doing the same work. Last month, the Obama administration recognized so-called “Equal Pay Day,” an annual event designed to bring attention to the “gender pay gap” that, they claim, pays American women only 77 cents for each dollar earned by men. That effort, however, was a public relations debacle, and was described by various commentators as “paycheck poppycock,” a “deceptive crusade,” an “ignoble lie,” the “equal pay canard,” “revolting equal pay demagoguery,” a “statistical fraud” and the “bogus 77 cent differential.”

The reason the 77 cents figure was so widely derided, even by some on the left, is that it does not account for the fact that men work longer hours than women, at more dangerous and financially risky jobs, have greater years of continuous work experience on average, and choose college majors with more value in the marketplace.  Even many White House allies have had to acknowledge the reality that only a small part of the overall male-female pay difference is attributable to labor market discrimination.

How much gender discrimination actually exists? We don’t know for sure, though economists June O’Neil – a former Congressional Budget Office Director – and Dave O’Neill estimate that after accounting for known factors affecting pay, the unexplained pay gap that could potentially arise from discrimination lies between zero and five percent. That’s a lot different than Obama’s claim of 23 percent.

The fallback position for progressives has been to acknowledge that these factors matter, but that “background discrimination” drives women’s choices toward careers with lower pay. To some degree, this simply seems demeaning: surely, an adult woman attending college can understand her choice to major in, say, sociology as well as a male student understands his choice to major in economics.

Recently, the American Association of University Women published a study claiming that a significant gender pay gap exists for new college graduates even after controlling for differences in college majors, occupations and other factors. If true, this would show that the main reason for the male-female pay gap – women’s shorter work hours and time spent out of the labor force after having children – wasn’t the real story. Except that the AAUW study actually leaves a lot out. For instance, the study lumps economics majors together with sociology majors as a single “social science” group. But economics majors have an average starting salary of $50,100, while sociology majors have an average starting salary of $37,400. Economics majors are 70 percent male, while sociology majors are  70 percent female. Failing to control for specific majors creates a gender pay gap where none really exists. The AAUW study is certainly better than the White House’s “77 cents on the dollar” claim, but analyzing Census data and controlling for specific college majors shows almost no gender pay gap for new college graduates.

Some gender discrimination in the labor market certainly does exist. But the best solution isn’t more lawsuits. In fact, the Obama administration’s proposal to shift the burden of proof in gender discrimination cases against employers would make hiring a female employee a potential legal liability for employers, and thus employers would hire fewer women.

What female workers need is a vibrant and competitive workplace, since it is competition that weeds out discrimination. When one employer discriminates against women, a new employer could earn a windfall profit by hiring an all-female workforce and paying them slightly more. That process of profit-oriented competition works to reduce gender and other forms of discrimination in the labor market. Several studies have shown that as industries faced increased competition, through either deregulation or international trade, the gender pay gap shrank. And the pay gap is larger in monopoly markets without competition and smaller in start-ups and small businesses that must be productive in order to survive. Women need more markets, more enterprise, and more opportunity, not more regulation and litigation.

Ironically, even the Obama White House faced scrutiny recently for its own 12% gender pay gap, which is more than twice the 5% gender pay gap for Washington, D.C. It’s unlikely that the 12% gender pay gap at the White House is primarily explained by discrimination, just as it’s unlikely that the 23% national pay gap is primarily explained by gender discrimination.  Women are much better served by the truth and accurate reporting about the gender pay gap than by misleading, exaggerated and false claims about a 23% discrimination-based nationwide pay gap.

Voxgov.com asked two organizations with differing views about the topic of equal pay to pen guest blogs. The opposing view, from American Association of University Women (AAUW) by Lisa M. Maatz (Vice President of Government Relations) can be found here.

 

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