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The Wage Gap between Men and Woman Virtually Disappears When Differences in Behavior Are Taken into Account

Turns out, different people value different things, and when you control for those differences, there's not much difference between what men and women make.

by Matt Knight (Links to an external site.)Links to an external site.

April has come and gone, and, with it, the highly publicized Equal Pay Day (Links to an external site.)Links to an external site.. It’s the day of the year on which women are said to have finally reached pay parity with men from the previous year; women working full-time, it turns out, only earn 77 percent (Links to an external site.)Links to an external site., 78 percent (Links to an external site.)Links to an external site., or 79 percent (Links to an external site.)Links to an external site. of what full-time male workers earn, depending on who you ask.

But there’s a problem with those figures, no matter which you choose: they account for exactly one confounding factor.

One.

Other Conditions Are Not Remaining the Same

In economics, there’s this great, smart-sounding Latin phrase—ceteris paribus—which means “with other conditions remaining the same.” It’s a quick way of communicating the idea that we’re trying to figure out exactly how much impact one factor has in determining an outcome.

Back to our numbers: we’re trying to discover just how much influence sexist discrimination has on women’s earnings relative to men’s, we’ve controlled for full-time status, and now we’re saying that—ceteris paribus—sexism alone accounts for a gap of 21 to 23 percent between men and women?

Shouldn’t we try to compare women and men who studied the same things in college and selected careers in the same fields?

Come on.

Granted, controlling for full-time status is important, but surely we can do better than one measly factor. I mean, there are a ton of other things that play into comparing the earnings of men and women, right?

For example, shouldn’t we try to compare women and men who studied the same things in college and selected careers in the same fields? Seems relatively important—and when we do that, the American Association of University Women finds that women actually make 93 percent (Links to an external site.)Links to an external site. of their male coworkers.

What about comparing work experience? Lengthy career interruptions? And, heck, what about overtime? Controlling for those things, a report (Links to an external site.)Links to an external site.prepared for the US Department of Labor found that women actually make 95 percent as much as their male coworkers.

I’d say a rise in women’s pay from 77 percent to 95 percent is quite an improvement, wouldn’t you agree?

But wait, there’s more!

Starting a family makes up a large (Links to an external site.)Links to an external site. (and growing (Links to an external site.)Links to an external site.) proportion of the total wage gap, and women tend to accept “family-friendly fringe benefits (Links to an external site.)Links to an external site.” (flexible hours, child-care, and parental leave, for example) in lieu of higher wages. When we account for these kinds of non-wage compensation, the gap in total compensation falls (Links to an external site.)Links to an external site. to 3.6 percent.

Neat, right?

Challenging the Basic Assumptions

Clearly, controlling for confounding factors is important; but as encouraging as all of these numbers are, we should take a step back and analyze some assumptions behind these comparisons.

Another questionable assumption is that people—not just women—are single-mindedly concerned with maximizing their income.

For one thing, we seem content to uncritically accept the notion that, at some point, when we’ve controlled for everything we can possibly think of, the remaining disparity will necessarily indicate discrimination; but it’s not obvious that this is the case. Stanford economist Thomas Sowell writes, “Where there are very significant differences in known factors between one group and another, it would be reckless to assume that all remaining unknown factors are the same.”

Another questionable assumption is that people—not just women—are single-mindedly concerned with maximizing their income, but that, too, is far from obvious. In fact, individual success (Links to an external site.)Links to an external site. is subjective and multidimensional. Using relative income as a means to compare men and women doesn’t tell us as much as we might wish it would because it ignores the complexity of success.

But even if we accept that comparing wages is a useful means of measuring sexual discrimination, we’re dealing with averages here, and while it’s important to understand what these numbers are telling us, it’s just as important for us to understand what they’re not telling us.

Take this study (Links to an external site.)Links to an external site., published in the American Economic Review, which finds that, when controlling for a host of relevant factors, women earn 97.5 percent of what men earn. Are we supposed to believe that that number is telling us that every female worker makes precisely 97.5 percent of what her male co-workers earn?

Not at all, but it does give us insight into the fact that there’s considerable wage variation between individuals.

If Jack makes more than Jill, what accounts for Jane, who makes more than Jack? What about John, who makes less than Jill?

Let’s say that the average male income is $50,000 per year, meaning that an average adjusted female income of 97.5 percent is $48,750. Sure, half of these women make less than $48,750, but the other half makes more than that. It’s the same thing with men: while half make more than $50,000 per year, the other half makes less.

This means that among the half of women who make more than $48,750 and the half of men who make less than $50,000, there’s considerable overlap, with a not inconsequential number of women out-earning men.

Given this overlap, sexual discrimination as an explanation for disparities in income loses some of its intellectual appeal—after all, if Jack makes more than Jill, what accounts for Jane, who makes more than Jack? What about John, who makes less than Jill?

Turns Out, People Are Different

A more comprehensive explanation of the data might be that men and women make different choices on the basis of differences in values—and, empirically, there’s actually very good reason to believe that this is the case. Research (Links to an external site.)Links to an external site. shows that men and women differ widely in choice of major while attending college. As a result, fewer women than men enter certain fields—STEM (Links to an external site.)Links to an external site., for instance—while the converse is also true—nursing (Links to an external site.)Links to an external site. is just under 9 percent male.

Furthermore, a recent study (Links to an external site.)Links to an external site. found that women choose to enter STEM fields less often in countries where they enjoy a higher degree of gender equality. Coupled with research (Links to an external site.)Links to an external site. that finds that men and women in countries with more gender equality diverge more widely in personality—even as they converge in valuing self-actualization—these facts suggest that empowered women tend to prefer pursuing careers they enjoy over jobs that merely pay them well.

University of Chicago economist Steven D. Levitt puts it this way:

Rather than interpreting women’s lower wages as a failure, perhaps it should be seen as a sign that a higher wage simply isn’t as meaningful an incentive for women as it is for men.”

Don’t get me wrong, here: none of this should be taken to mean that sexism doesn’t exist—it most certainly does—but the data, and especially this analysis, should be encouraging to those of us who are concerned about the economic well-being of women in 2018.

Reprinted from the Libertarian Institute. (Links to an external site.)Links to an external site.

Matt Knight (Links to an external site.)Links to an external site.

Matt Knight studies economics at Utah State University and is a contributor at The Libertarian Institute.

Answer 1

• the author touches on the subject of pay disparity and focuses on looking at it with more than one factor
  • usally when gender pay gap is discussed , the gap is looked at purely from an average empirical point of view. which is to say , it is said that on an average, women earn around 20-22% less than men

while that is empiraclly true ,it does not take into account many many more factors that affect the wage- just as the author argues. These factors are-

• When compared in the field and same length of career, this gap gets reduced to less than 5 percent. The proportion of women who take STEM courses is lower than men. On the other side, the proportion of men who taken Humanities courses is lower than women. Now, by and large, STEM jobs pay much more than Humanities jobs. This is an important factor.
• When compared in the field and same length of career, this gap gets reduced to less than 5 percent. The proportion of women who take STEM courses is lower than men. On the other side, the proportion of men who taken Humanities courses is lower than women. Now, by and large, STEM jobs pay much more than Humanities jobs. This is an important factor.
  Women also value other things- such as raising family or having flexible hours, child care, maternity leave etc. This means they are not necessarily single-mindedly focussed on jobs which give higher pay. A higher proportion of men are. This results in them taking such jobs and hence, getting more money.
• It is interesting to note that more women take social sciences courses in countries which have higher gender equality! This tells us thWhile the author doesn’t mention this point- it is also to be noted that men, on an average, are more forceful when it comes to their career. They will argue about the pay they are getting, the position that they think they deserve etc. This results in a higher chance of them actually getting that pay and position.at when given freedom, women go gravitate more towards courses careers which might be more fulfilling on other than monetary ways.
• While the author doesn’t mention this point- it is also to be noted that men, on an average, are more forceful when it comes to their career. They will argue about the pay they are getting, the position that they think they deserve etc. This results in a higher chance of them actually getting that pay and position.
• Going through the article, I would say that the author makes valid points. We should not see anything in isolation. There is no doubt that there are cases of gender discrimination, but that does not mean that the only reason for the pay disparity is that only. People are different, men and women are different. It is often found that Indian, Chinese and Jewish Americans are often the highest earning ethnicities. So do we say that racism doesn’t exist? No, because we instinctively know that there are many factors which make these ethnicities more successful- which includes culture, education orientation, different priorities etc. The same applies here. There are many factors which affect the wage gap, not just gender discrimination.

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