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The public policy blog of the American Enterprise Institute
A couple of years ago, I wrote on the so-called “gender pay gap.” I’ll revisit four points from that article in honor of Equal Pay Day, which commemorates the claim that women earn only 77 cents for each dollar received by men. Despite a comprehensive Department of Labor study which warned that “the raw wage gap should not be used as the basis to justify corrective action,” the DOL itself has a web page dedicated to “Equal Pay,” which is calculated — if that word can be applied here — based on the raw wage gap. President Obama himself cited the 77% claim in his own remarks.
First, when controlling for all the factors that influence pay, such as work experience, the number of hours worked per week, and so on, the raw gender pay gap almost disappears. The room in which legitimate gender discrimination can operate is a lot smaller than you’d think. The 77-cents-on-the-dollar claim has been far more thoroughly debunked than, say, doubts regarding global warming or the claim that lower tax rates increase tax revenues. June O’Neill is by far the leading economist studying these issues, so don’t miss her AEI event this week.
Second, women tend to work in jobs that pay higher benefits relative to their salaries. Economists Eric Solberg and Teresa Laughlin of California State University found that factoring in benefits eliminated around nine percentage points of the raw pay gap, and concluded that “any measure of earnings that excludes fringe benefits may produce misleading results as to the existence, magnitude, consequence, and source of market discrimination.” If salaries are practically equal and women receive more generous benefits, it’s possible the pay gap actually works in reverse. I think I’m going to sue.
Third, the profit motive works to reduce the pay gap. If Employer A pays women 77 cents on the dollar, Employer B can hire all Employer A’s female workers at 78 cents on the dollar to replace his costlier male employees. This raises Employer B’s profits, while Employer A must now pay full freight for his all-male workforce. The Royal Swedish Academy of Sciences noted, in awarding Gary Becker the 1992 Prize in Economics, that “discrimination thus tends to be economically detrimental not only to those who are discriminated against, but also to those who practice discrimination.”
And fourth, several studies have shown that as industries face increased competition through deregulation or international trade, the gender pay gap shrinks. 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. So women need more markets, more enterprise, and more opportunity, not more regulation and litigation.
But you wouldn’t know any of that from the Equal Pay Day claptrap you’re likely to hear today. Enjoy.
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