Women, as good as men. Just cheaper.

Everyone is aware there is a wage gap. If you are unaware, here is a quick update. Men earn more than women – it’s a fact (according to most). It is calculated that women earn as much as 21.7 percent less than their male counterparts.

 According to an article by Fortune, this gap is a detriment to all, not just women. This disparity in wage is claimed to be part of the reason we see poverty among working single mothers. Fortune also claims that the wage gap actually widened in 2015, which shorts women up to $500k over the life of their career and won’t pay women equal pay for another 117 years. I am sure the numbers have some validity, however, the article doesn’t broach the question, “Why is there a wage gap?” or better yet, “Is there really a wage gap?”

My suspicion is that maybe we are just looking at wage discrimination. Much like price discrimination is good for selling products across multiple demographics, wage discrimination is good for hiring across multiple demographics. These demographics can range from location, ethnicity, and even sex. So rather than assuming companies are acting like men from the 1940’s and 50’s, we should be analyzing labor numbers. Let’s take a look at 78.3 percent, which is the percentage of income women make compared to men. Now take a women that works full-time, all year, and divided it by the median annual earnings for the year and you come to 78.3 percent or something close to that, depending on where you get the numbers. What this calculation doesn’t take into consideration is individuals. Instead of measuring across the workforce as a whole, shouldn’t we be looking at individuals with similar attributes? If we take a man and woman with similar education, labor-force participation rates, and productivity attributes, do we still see the 21.7 percent gap in wages? Studies show that we don’t, and that in reality the number is significantly smaller.

So if it’s not sexism, what is it? In the end what is found is that women want different things than men. Women are more prone to taking time off rather than pay raises. Women would rather not join the rat race and stay late every night. They have family as more of a priority than men do. This difference in priorities results in women working less hours, and getting fewer promotions, which in turn lowers their earning potential. I propose that instead of calling it a “wage gap,” we should more appropriately call it a “priorities gap.”

Here Are 5 of the Most Infuriating Facts About the Wage Gap


Dr. Tufte said...

Vain Janglings: 94/100

The clause "... won’t pay women equal pay for another 117 years ..." does not make sense. I'm not sure I like the grammar in your title, but I can see that it's done for effect, so I'll let it slide.

This is a hot button issue, about which most casual opinions are badly underinformed. Professionally, we think that the wage gap is not the 20% or so that is commonly cited. But it isn't zero either.

It is a fact that there is a wage gap across all employees. It is also a fact that in some jobs there is no wage gap at all. In others, women earn more than men. Of
course, since we're talking about averages, those two points mean there are also some jobs for which the wage gap is larger than the average.

It is helpful to think a little bit about point versus interval estimates (like confidence intervals). Point estimates like 21.7% are useful, but the probability of them being exactly correct is zero. We'd be better off using an interval estimate, like 15-25%, and attaching some level of confidence to that (like the 95% we talk about in statistics classes). This is important because there are important adjustments that push the estimates towards zero. We need to have a national discussion of what interval is good enough to claim that the wage gap is gone. Instead, we have many people that say that if it's, say, 4%, that this is still a problem. Statistically, that sort of claim isn't excusable. It's similar to criticizing the weatherperson for saying it's going to be 70 when it's actually 69. Reasonable people recognize that this is unreasonable behavior. We need the same sort of seriousness about the wage gap: define the range that is OK first, and then measure where we fall against it.

It's also helpful to think about wages versus compensation. Wages are part of compensation. But, there can be a wage gap going one way, which is balanced by a gap in non-wage compensation going the other way. I recommend discounting the opinion of anyone who focuses on a wage gap rather than a compensation gap. They are cherry-picking.

We also need to think about monetary versus non-monetary compensation (like low stress, location, flexibility, and so on). Many people, myself included, take jobs where the monetary compensation is lower because the non-monetary compensation is higher.

If you put all those together, the raw point estimate of a 21.7% gap needs to be adjusted. Those adjustments move that number towards zero. Whether they move it close enough is debatable.

Dr. Tufte said...

So, is this just price/wage discrimination, as asserted by Vain Janglings? It's unfortunate that decades ago economists put the word discrimination in "price discrimination". Today, we think discrimination implies illegality. But the price discrimination we discuss in economics is not only legal, it's viewed as acceptable and normal by broader society. We can probably eliminate first degree price discrimination: it doesn't seem like employers are very good at figuring out how little specific employees will accept. But, there could be some second degree price discrimination going on: jobs are presented to potential employees with a bundle of attributes, and men and women may choose between them differently. There's nothing wrong with that if no one is forced to choose one option over something else they'd prefer. There's also certainly third degree price discrimination. This is bundling of specific job attributes to appeal specifically to men or women. There's nothing wrong with this either; it's kind of thoughtful, actually.

But, most of what Vain Janglings talks about is not price discrimination per se, but rather what we might see in the data after the fact that indicates price discrimination has taken place. This is problematic because you can't separate it from actual discrimination, but what can you do, right? What we find when we do that is most of the wage gap disappears. But, the real question is if women feel like they have to make the choices they do, and would prefer other choices that are not available to them. Again, evidence is very hard to come by to prove or disprove that point.

Here. it becomes important to include an argument that Vain Janglings did not make. This is arbitrage. This is the idea that if there is an opportunity to make a profit by changing business practices, someone will take advantage of it. In this case, if you really can hire women and pay them less on average, there should be some evidence that someone is doing just that. Here the evidence is rather damning against the importance of the wage gap: there's considerable evidence that businesses used to do exactly this, and that the profit opportunities for it started disappearing a generation or two ago. This suggests that what we are seeing is a result of pricing policies (possibility including price discrimination) rather than actual discrimination.

One aspect of this is frequently overlooked: bundling. Many goods are bought and sold as bundles that are difficult to unbundle. Jobs certainly fit this description: a job is a bundle of work, compensation, effort, side deals, personality conflicts, moral preferences, safety, and hedonic benefits. Judging jobs by pay rather than by the whole bundle is about as serious as judging Big Macs from different outlets by the quantity of special sauce the employees put on in each place. Yet people judge jobs this way all the time.

Dr. Tufte said...

Lastly, here are three special issues of concern.

First, many jobs have tournament aspects to them: many people are initially hired, and only one gets to the top. Those top jobs are often highly paid. Yet surveys suggest men may actually choose to enter these tournaments more often than women. That will skew results.

Secondly, there's workplace deaths. We do not do a very good job of quantifying job danger. The raw numbers are that men are about 14 times as likely to be killed on the job as women. That will lead to a pay gap, as men gamble with their lives for higher compensation. The things is, the 14 to 1 is an understatement. Many women who are killed on the job result from spillovers from problems at home. This is unfortunate, but it is masking a huge reason why men are paid quite a bit for some types of unskilled labor.

Third, there is new research about grades and evaluations that we're not sure what to make of. It seems that women are more likely to interpret their grade as evidence of their ability in a class or field, and that they more heavily discount the fact that some classes are harder and have lower grades. The upshot of this is that women appear to be self-selecting into majors with higher average GPA's. This is fine if those fields pay more. But this doesn't seem to be the case.

Promise: my comments are not usually this long, but these are hot button issues with a lot of details.

mholley said...

In my management class we recently talked about this subject. We were given several scholarly articles to write about. One article in particular addressed a possible explanation on why women are payed less then men. When women were offered a job they were less likely negotiate for a higher salary. Even though in most cases they were more qualified then a man, women were hesitant to negotiate a higher salary for themselves compared to men. This made me think of Dr. Tufte's comment about the tournament aspect of jobs. Although this example was at the beginning of the job process, men already started choosing to compete. This idea goes back to Vain Jainglings's comment about the difference of priorities between men and women and what they want out of their professional careers. It appears from the numbers given in the post that wage discrimination is not the main culprit but the fact that, in general, women work to live and men live to work.

CJ said...

I must say this was an interesting post for a hot topic and it seems this topic is being more published and more relevant of late. Given the time of the year and including current events that will unfold in November, it’s truthfully not a surprise. There was however surprises reading through the post.

One major surprise for myself is the “studies” that show a significantly lower percentage in the wage gap. One would consider that if those studies had as concrete data as opposing studies, they would be more widespread and either refuted or acknowledged. Studies such as that would be an interesting read and may house facts that should be known.

That aside, it’s interesting how the Fortune article that was used its collected data. The foundation to the article used research data from Institute for Women’s Policy Research (www.iwpr.org), yet did not for parity. Which the author used the World Economic Forum’s estimate of 117 years instead of the IWPR pay parity of 44 years. This is actually a perceptive view of the gap. Discussing the “117 years” reflects a long timeframe and it gives off the “it’ll never get fixed” perception. The “44 years” seems more of a current trend; it shows that there is possibility to lessen the gap sooner than later. If actually the wage gap was “significantly smaller” would this be such an issue? and with less of a timeframe of fix?

The unfortunate point to it however is much of the concept of the wage gap has hard to quantify aspects, such as the argument of priorities. It would seem reading over Vain’s post, as they are taking the stance there truly is no difference in wages between the genders and it is not sexism. But what the final paragraph’s argument suggests is that the female’s choice causes any noticeable gap. Ironic that much of that is sexist: “Women are…” or “Women would…” which is unfortunate. Such claims should be backed proof, since there are discriminatory survey’s being conducted currently: Fear of Earnings Less than Their Wives (http://fortune.com/2016/04/20/men-breadwinners-trump/) and stories similar to my director, who did join the “rat race”, completed her Masters as a single parent, and sends work emails up till 10, 11 at night.

Dr. Tufte said...

mholley: 50/50

CJ: 35/50. Both "...there was however surprises" and "was used its collected data" have problems with subject/verb agreement. (-6) In the sentence that begins "Which the author used the World Economic Forum's estimate...", "Which" doesn't refer to anything. (-3) I did not take off because you did not insert an "a" between "is" and "possibility". I did not take off because you did not insert a "the" between "from" and "Institute". In the phrase "... should be backed proof ..." you are missing a preposition. (-3) In the phrase "survey's being conducted" you have an apostrophe that is incorrect. (-3)

Thanks to mholley for bringing up the research on gender differences in the willingness to negotiate. I had forgotten about that.

I am glad to have brought up the studies that CJ was surprised about. There are quite a few, but not nearly as many as for the minimum wage topic in one of the other posts. What I find most interesting about them is that essentially all of the countervailing factors can be shown to narrow the wage gap from something like 20% towards zero. No one has come up with any evidence that the raw estimate of 20% is too small.

Perhaps the Fortune could have been written better. But I don't think it's sexist to frame the discussion with "Women are ..." or "Women would ...". Following mholley's comment, the authors either have to write something like "Women are less aggressive negotiators" or "Men are more aggressive negotiators", but I don't think it's fruitful to snipe because they picked one of the two.