Carpe Diem

Once you impose the ‘ceteris paribus’ condition, the alleged 23% gender pay gap starts to quickly evaporate

genderpayNext Tuesday (April 8) is “Equal Pay Day,” which is an annual event to bring public awareness to the “gender wage gap.” Based on the questionable assumption that women earn only 77 cents for every dollar a man earns, April 8 marks the date in 2014 that the average woman would have to continue working to earn the same amount of income the average man made in 2013, i.e. 68 extra days of work to make up for the 23% wage gap. Here’s how the National Committee on Pay Equity (the organization that sponsors “Equal Pay Day”) explains the 23% gender wage gap:

The wage gap exists, in part, because many women and people of color are still segregated into a few low-paying occupations. More than half of all women workers hold sales, clerical and service jobs. Studies show that the more an occupation is dominated by women or people of color, the less it pays. Part of the wage gap results from differences in education, experience or time in the workforce. But a significant portion cannot be explained by any of those factors; it is attributable to discrimination. In other words, certain jobs pay less because they are held by women and people of color.

Does the evidence support the claim that discrimination explains a significant portion of the gender wage gap? Not really. Let’s explore further. And without even considering any empirical evidence, the claim would be unbelievable prima facie. Reason? It would mean that thousands of employers across the country could easily and immediately save 23% on their labor costs by hiring only women (or firing all of their male workers and hiring female workers). That is, it couldn’t possibly be true that the gender pay gap is mostly due to discrimination, because it would mean that profit-seeking employers all across the country have overlooked an easy way to save 23% on their main cost – labor.

Let’s then consider empirical wage data from the Bureau of Labor Statistics (BLS) annual report on the “Highlights of Women’s Earnings.” Here’s the opening paragraph from the most recent BLS report on women’s earnings in 2012:

In 2012, women who were full-time wage and salary workers had median usual weekly earnings of $691. On average in 2012, women made about 81 percent of the median earnings of male full-time wage and salary workers ($854). In 1979, the first year for which comparable earnings data are available, women earned 62 percent of what men earned.

How do we explain the fact that women working full-time earned 81 cents for every one dollar men earned in 2012 (and the 19% pay gap)? Could it really be the result primarily of gender discrimination? Let’s investigate by looking at some of the findings in the BLS report:

1. From page 6: “Among full-time workers (that is, those working at a job 35 hours or more per week), men are more likely than women to have a longer workweek. Twenty-six percent of men worked 41 or more hours per week in 2012, compared with 14 percent of women who did so. Women were more likely than men to work 35 to 39 hours per week: 12 percent of women worked those hours in 2012, while 5 percent of men did. A large majority of both male and female full-time workers had a 40-hour workweek; among these workers, women earned 88 percent as much as men earned.”

Comment: Because men work more hours on average than women, some of the raw wage gap naturally disappears just by simply controlling for the number of hours worked per week, an important factor not even mentioned by groups like the National Committee on Pay Equity. For example, women earned 81.2% of median male earnings for all workers working 35 hours per week or more, for a raw, unadjusted pay gap of 18.8% for full-time workers (Table 5). But for those workers with a 40-hour workweek, women earned 87.7% of median male earnings, for a pay gap of only 12.3%. Therefore, once we control only for one variable – hours worked – and compare men and women both working 40-hours per week in 2012, about one-third of the raw 18.8% pay gap disappears.

Further, for the group of full-time workers who work 35-39 hours per week, women earned 111.3% of what their male counterparts earned in 2012, and therefore for that group there was an 11.3% pay gap in favor of women.

2. The BLS reports that for single workers who have never married, women earned 95.8% of men’s earnings in 2012, which is a wage gap of only 4.2% (see Table 1 and chart above).  For that group, 78% of the unadjusted 19% wage gap is explained by just one variable (among many): marital status.

3. Also from Table 1 in the BLS report, we find that for married workers with a spouse present, women earned only 76.6% of what married men with a spouse present earned in 2012 (see chart). Therefore, BLS data show that marriage has a significant and negative effect on women’s earnings relative to men’s, but we can assume that marriage is a voluntary lifestyle decision, and it’s that choice, not labor market discrimination, that contributes to much of the gender wage gap for married workers.

4. Also in Table 1, the BLS reports that for young workers ages 20-24 years and 25-34 years, women earned 89% and 90.2% of their male counterparts (see chart), respectively.  Once again, controlling for only one variable – age – we find that almost half of the unadjusted raw wage gap disappears for young workers.

5. In Table 7, the BLS reports that for single workers (includes never married, divorced, separated and widowed) with no children under 18 years old at home, women’s median weekly earnings were 95.2% of their male counterparts (see chart). For this group, once you control for marital status only, you automatically explain 75% of the gender earnings differential.

6. Also in Table 7, the BLS reports that married women (with spouse present) working full-time with children under 6 years at home earned 82% of what married men (with spouse present) earned working full-time with children under 6 years. Once again, we find that marriage and motherhood have a significantly negative effect on women’s earnings; but those lower earnings don’t necessarily result from labor market discrimination, they more likely result from personal and family choices about careers, workplace flexibility, workplace environment, and hours worked, etc.

7. If we look at median hourly earnings, instead of median weekly earnings, the BLS reports in Table 8 that women earned 86.4% of what men earned in 2012 (wage gap of 13.6%), which accounts for more than 25% of the raw gender earnings gap when measured by weekly earnings. And when we look at young workers paid hourly rates, women ages 16 to 19 years earned 97.9% of their male counterparts in 2012, and for the 20-24 year old group, women earned 92% of what men earned. For unmarried hourly workers of all ages, women earned 92.3% of their male counterparts in 2012 (a 7.7% wage gap), which explains almost 50% of the 13.6% unadjusted gender difference in hourly earnings.

When the BLS reports that women working full-time in 2012 earned 81% of what men earned working full-time, that is very much different than saying that women earned 81% of what men earned for doing exactly the same work while working the exact same hours, with exactly the same educational background and exactly the same years of continuous, uninterrupted work experience, and assuming no gender differences in family roles like childcare. As shown above, once we start controlling individually for the many relevant factors that affect earnings, e.g. hours worked, age, and marital status, most of the raw earnings differential disappears. In a more comprehensive study that controlled for all of the relevant variables simultaneously, we would likely find that those variables would account for almost 100% of the unadjusted, raw earnings differential of 19% lower earnings for women reported by the BLS. Discrimination, to the extent that it does exist, would likely account for a very small portion of the raw gender pay gap.

For example, in a 2005 NBER working paper “What Do Wage Differentials Tell Us about Labor Market Discrimination?” by June O’Neill (Professor of economics at Baruch College CUNY, and former Director of the Congressional Budget Office), she conducts an empirical investigation using Census data and concludes that:

There is no gender gap in wages among men and women with similar family roles. Comparing the wage gap between women and men ages 35-43 who have never married and never had a child, we find a small observed gap in favor of women, which becomes insignificant after accounting for differences in skills and job and workplace characteristics.

This observation is an important one because it suggests that the factors underlying the gender gap in pay primarily reflect choices made by men and women given their different societal roles, rather than labor market discrimination against women due to their sex.

Bottom Line: To claim that a significant portion of the raw wage gap can only be explained by discrimination is intellectually dishonest and completely unsupported by the empirical evidence. And yet we hear all the time from groups like the National Committee on Pay Equity, the American Association of University Women, the Institute for Women’s Policy Research, and even Presidents Obama and Carter that women “are paid 77 cents for every dollar paid to men.” And in most cases when that claim is made, there is almost no attention paid to the reality that almost all of the raw, unadjusted pay differentials can be explained by everything except discrimination – hours worked, age, marital status, children, years of continuous experience, workplace conditions, family roles, etc. In other words, once you impose the important ceteris paribus condition of “all other things being equal or held constant,” the gender pay gap that we hear so much about evaporates. And even if we allow that some minor amount of the pay gap is from gender discrimination, “Equal Pay Day” should be celebrated in the first few weeks of January, not the second week of April.

 

37 thoughts on “Once you impose the ‘ceteris paribus’ condition, the alleged 23% gender pay gap starts to quickly evaporate

  1. Let’s have “equal consumption day” which shows that women consume the same amount as a man on average and yet earn less, meaning a man has to work an extra 1/3 of his life just to consume as much as a woman.

    • Most of what men earn is eventually transferred to women. If the man is lucky, that woman is his current wife, and even treats him well..

      But otherwise, either via government or court order, much of what men produce goes to women. That is why the male poverty rate is so much higher than the female poverty rate.

      93% of workplace deaths are of men too.

      • seriously toads, do you just make this stuff up or what?

        the poverty rate for us women over 18 is 14.6% vs 10.9% for men.

        i have no idea where you get these “facts” but you need a new source.

        10 seconds with google will show you how wrong you are.

        • Uh, what the hell? Where are you getting your stats? Official stats in Canada for example, 70% of homeless people are men.

          In fact, upon searching google for like 10 sources for homeless stats in USA and Canada, every single source says that there are at least 2-3x as many homeless men than women.

          Not sure if you’re a liar or just retarded

          • “Not sure if you’re a liar or just retarted”

            Not exactly constructive there. No reason to be hostile.

        • There’s poverty, and poverty. More extreme poverty – i.e. homeless, living-on-the-street poverty, experienced by men. More below-the-official-poverty-line-but-can-afford-at-least-a-lousy-place-to-live may be experienced by women.

      • I strongly recommend the following essay by Colonel Tom Kratman.

        http://www.baen.com/amazonsrightbreast.asp

        To summarize, an infantry commander, who later went JAG, then professional author, had plenty of problems with women in combat units. Pregnancies right after deployment announcements, pregnancies during deployments, men cover for women instead of doing their own jobs, defacto prostitution, etc…

        He makes some excellent points. Well worth the read.

      • Uhm…I honestly don’t see how this is relevant to the article. Plus, women being “forced” to defend their country? Not even men are forced to defend their country. We haven’t had the draft in a long time. We have enough volunteers that I really don’t anticipate one anytime soon. Also, there are more of us women in the military than you think. Last I heard, we make up about 20% of the Army at least. Probably a little more in AF, CG, and Navy. While it’s not even by any means, there’s lots of women who voluntarily serve their country. Plus “equality” in the military? HA fat chance. The men see women in the military as a joke. Joining the military will not all of a sudden open up women’s eyes to what equality is.

  2. Prof. Perry said,

    To claim that a significant portion of the raw wage gap can only be explained by discrimination is intellectually dishonest and completely unsupported by the empirical evidence. And yet we hear all the time from groups like the National Committee on Pay Equity, the American Association of University Women, the Institute for Women’s Policy Research, and even Presidents Obama and Carter that women “are paid 77 cents for every dollar paid to men.”

    This sentence indicates that Prof. Perry still thinks the purveyors of this ‘pay gap’ lie care about facts or logic. They do not. This myth will never go away…

    And why should it, when it is so politically useful, and women have shown that they will always vote for what feels good at any given time.

    • Toads,

      Apparently you have been traumatized at some point in the past by a woman who did “what feels good.” It’s good how you are getting over that. You might want to consider the possibility that all women aren’t the same.

      • If a significant portion of a group wants something, the best way to attract votes from them is to use that something as a carrot. Women, happen to be the largest group of voters, so attracting female voters will always be a valid political strategy. Wether or not the gender gap is real, or the fact that there are women who do not care about it is not very important when aiming to win an election.

        • or the fact that there are women who do not care about it is not very important when aiming to win an election.

          Yes.

          And as I point out, there are only a minimal number of Republican women who care to point out that the ‘pay gap’ is a lie, even though such a myth harms women’s employment prospects.

          This lack of opposition from the majority of women, even women who vote Republican, is the main point.

      • You might want to consider the possibility that all women aren’t the same.

        No, but enough are the same that you don’t see any opposition to the ‘gender pay gap’ myth from about 99% of women, even though such a myth harms women (by inducing employers to avoid hiring them and their associated lawsuit risk).

        Look how few women there are bringing up the issues that Dr. Helen brings up.

    • I totally understand that the gender activists and feminists (and Obama and his supporters) don’t really care about facts, logic or empirical evidence. But it’s still important to point this out as often as possible, and try to counteract their lack of facts/evidence with facts/evidence/data, etc. I’ve got a lifetime of work ahead of me.

      • toads:

        also, many people do care about facts and evidence.

        thus, it is very important that such things be made available and the arguments based on them foregrounded in clear, rational fashion.

        while one may not be able to change the mind of a zealot, one can change the mind of a well intentioned, rational person who simply may not have seen the facts before.

        this is doubly important in the face of one sided media coverage.

        mark provide a very valuable service in this respect and it is no less so for being unable to reach the 5% of zealots who are never going to change their minds.

      • Someone who “really cares[s] about facts, logic or empirical evidence” would note the residual (wage discrimination) gender gap after application of the ceteris paribus condition.

        Is it Goldin’s nonlinearity with respect to temporal flexibility of hours or are you just a bought and paid for political operative?

        • <5% can be explained away through many other means other than discrimination and there is this thing called "Standard Deviation" in calculating statistics like these.

          Also note:

          "Further, for the group of full-time workers who work 35-39 hours per week, women earned 111.3% of what their male counterparts earned in 2012, and therefore for that group there was an 11.3% pay gap in favor of women."

          • Well it would be de riguer to have a cite, Chad.

            I give kudos to Perry. He should clean up his own house first, though. The ratio of male to female scholars at AEI is 20:1, even though the ratio of male to female master’s and doctorates is 1:1.

            Arthur Brooks must make more dough than all the female administrative assistants at AEI combined. That would be about 60 of them at $40 grand a year.

          • marmico-

            have you missed the whole discussion here?

            what is it that mark has said that would require him to “clean up his own house”?

            he is not criticizing others for hiring or payment, he’s doing to opposite.

          • m: “what is it that mark has said that would require him to “clean up his own house”?

            It’s always hard to tell with marmico, but I can only guess that he considers AEI to be Mark’s “house”, therefore any ratio of men to women employees that’s different from the ratio of men to women in the general population, is a problem that needs to be fixed – by Mark.

        • also note:

          goldin did not correctly adjust for hours.

          she used “full time” as over 35 hours a week and “full year” as over 40 weeks a year, but does not control for the fact that far more men that women work over 40 hours and far more women than men work between 35-40.

          thus, it is leaving out key salients and misses the “ceteris paribus” conditions in a way that systematically skews its results.

          • Now that I have been culled (deleted) and morganovich is the “key salient”, I will repeat. The American Enterprise Institute is a misogynist organization perpetuating the residual gender wage gap.

          • “Now that I have been culled (deleted) and morganovich is the “key salient”, I will repeat. The American Enterprise Institute is a misogynist organization perpetuating the residual gender wage gap.”

            is this even intended to make sense?

            how is AEI misogynist?

            do you have even a shred of proof or even a rational argument?

            it sure seems like you do not.

            not all outcomes that are not evenly spread by gender are a sign of discrimination.

  3. So the determining factor that separates “all things being equal” is children. And then folks wonder why sub-replacement birth rates exist?

  4. This also doesn’t address a REALLY common difference in men’s vs. women’s work – women are FAR more likely to have health and other benefits in full-time work than men. Many women work that job just for the bennies, which allows their husband to work a more lucrative job.

    • LindaF

      Yes, on average women are more interested in security, and are more risk averse than men. That’s neither a good thing nor a bad thing – it just IS. Men and women are *different*. Imagine that!

  5. Just heard a friend was living in Switzerland. She has an outstanding CV- MBA at Duke- good jobs in her twenties, etc.

    She is now a stay-at-home mom in Switzerland. Sure- part of this is that her husband has the work visa- she does not- but basically you have a woman making $0 where her husband makes a nice mid six figures. But a lot of women married to high earning men give up their careers.

    How does THAT skew the %?

    • Mastro

      That’s almost the entire issue of why men make more than women. It is not as often practical, or in their best interest, for a husband to stay home while his wife goes to work. On average, that works at odds with their natural predilections and aptitudes.

      To avoid criticism from those who think men and women are identical in every way, you might, rather than attributing $0 income to her, write that your friend and her husband make a nice mid six figures through co-operative specialization and division of labor.

      They both work, it’s just that he indirectly trades his labor for things they can’t reasonably provide for themselves, like food, clothing, shelter, transportation, etc.

  6. I’ve often wondered…
    If you took a census of every college student in the US enrolled in a 4 year degree program and assigned to that student a salary equal to the average salary (regardless of gender) earned by someone who posses the degree they are working towards…would you see a gender pay gap? I think there would be a significant cap.

  7. I’d love to see an analysis of how the fact that 90%+ of workplace fatalities interacts with rates of pay and lifetime earnings. It just makes sense that the more dangerous jobs pay more, and that men are far more likely to take those jobs.

    It’s always striking to me how often this figure is ignored in this discussion, though, and makes me wonder if those ‘men are considered disposable’ theories aren’t correct.

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