Economics, Regulation

77 cents on the dollar: An unequivocally bogus statistic

Image Credit: Victor1558 (Flickr) (CC BY 2.0)

Image Credit: Victor1558 (Flickr) (CC BY 2.0)

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.

4 thoughts on “77 cents on the dollar: An unequivocally bogus statistic

  1. I’m sorry, what kind of generous benefits am I receiving that my male coworkers are not? Please elaborate, because I was unaware of this perk I am clearly not taking advantage of.

  2. AE: Maybe I didn’t express the research quite right. It’s not that within a given employer, women receive better benefits than men. It’s that, ON AVERAGE, women tend to work in jobs that pay better benefits RELATIVE TO WAGES, than men. (The capitals are for stress; I’m not yelling at you!) E.g., more women work in government and non-profits, and these jobs tend to have more generous benefits (again, relative to the wages they pay) than other jobs. If we know from the data that, after controlling for other factors, male/female salaries are pretty close, then it’s possible that more generous benefits actually make total female compensation higher (again, after controlling for all relevant factors, etc).

  3. While the 77% statistic is bogus, this article doesn’t articulate the reasons that well.

    The fact that discrimination works against employers doesn’t mean it doesn’t exist. Should we pretend discrimination against blacks didn’t exist in the 1960′s because it didn’t make economic sense?

    Often, the problem with the calculation of the statistic is that it doesn’t do a like-for-like comparison when it comes to hours worked, seniority etc.

    Additionally, some of these studies presume that a woman with a 4-year art history degree should be making the same as a man with a 4-year computer science degree, ignoring market forces.

    Women also receive more in gratuities (which often goes unreported skewing the statistics).

    When you peel away all the layers, there is still a discrepancy of 1-5%, which is largely attributed to employers preferring a man over a woman, because of the risk that women are more likely to go on mat leave and/or retire to raise a family.

    A wage gap will always exist as long as society tells us that women should be the primary caregiver.

    • It wasnt society that made such a claim of women being better caregivers and therefore the primaries in court settlements – it was the feminist movement. Take a good look at the Tender Years Doctrine and how it’s tenants still apply to the court systems of today and the feminist lobby slandered men as predatory when it comes to children. Feminists argue that being the primary in custodial cases and viewed as better caregivers is a misogynistic view set forth by the patriarchy (wow what a terrible thing to accuse women of ! Being caring , how dare we say such a thing) , but do you see feminists arguing to change the law ? Nope ! It benefits them ! They have one more issue to argue about, while they get full custody of their children and a sweet little check every month for alimony and child support. Hell if I was a feminist why would I argue against such a sweet deal ?

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