Friday, June 24, 2011

The reasons behind the gender pay gap

A slightly modified of this article appeared in the New Zealand Herald on Saturday June 25, 2011.

Women should get paid the same as men for doing the same job. This should not be a matter of debate, particularly in the country that was first in giving women the right to vote way back in 1893.

The existence of a gender wage gap in the work-place is well documented. Women earn less than men in similar jobs even after controlling for other factors such as education and experience. In the United States annual earnings data released by the Census Bureau in September 2010 shows that women working full time make, on average, only 77 cents for every dollar earned by men.

The UK Office of National Statistics reported in April 2010 that hourly wage rates for men working full time was £13.01 while for full time working women the rate was £11.68. This difference amounts to women earning about £10.60 less per 8-hour working day and about £425.60 less per 40 hour work week. Assuming a 48 week year, in 2010 women working full time in the UK earned £20,428 less than men working full time.

What explains this lower earning for women? A number of people put forward arguments similar to those expressed by the Employer and Manufacturers Association chief Alasdair Thomson, albeit with finesse; that women often take time off from work to start a family or take care of children and other arguments along those lines.

The question has been the subject of much research. If we do observe differences in the relative pay of men and women, this can be due to two separate sources; either differences in observable characteristics such as education, hours worked, work experience, and choice of occupation, or due to unobserved factors like discrimination against women in the work place such as lower wage for the same work.

Two leading labour economists from Cornell University Francine Blau and Lawrence Kahn carried out a comprehensive study that takes into account a large number of variables such as education, labor market experience, race, choice of occupation and report that while the gender wage gap does diminish when all these factors are taken into account nevertheless a substantial part of the gender wage gap – about 12% - remains unexplained.


Robert Wood, Mary Corcoran and Paul Courant look at graduates of the University of Michigan Law School. They match the men and women in their sample for many of the possible explanatory factors, such as occupation, age, experience, education, and time in the workforce, time spent in childcare, average hours worked, grades while in college, etc. Even after accounting for all that the authors find that one-quarter to one-third of the gender wage gap remains unexplained.

Recent research throws up another reason why women may earn less than men: women simply do not ask for more. In the 2003 book Women Don’t Ask Linda Babcock and Sara Laschever point out that among MBAs from Carnegie Mellon University starting salaries for men were almost $4000 higher than that for women; to a large extent because while only 7% of the women negotiated their starting salary, 57% of the men did so. While $4000 at the beginning of one’s career may not be a large difference, given that salary increments are typically a percentage of base salary – and other things like bonuses also depend on current salary - a small difference early on translates into large differences later in life.

In research carried out by me and others, we document a similar reluctance on the part of women to compete. Given the essentially competitive nature of the work-place this usually does not bode well for their future success. To a large extent this aversion to competing is a function of women’s socialization and nurture.

In the late 1990s Lilly Ledbetter’s lawsuit against the Goodyear Tire and Rubber Company in the US became an important milestone in the fight for gender pay equity. When she retired after 20 years of service she found that her monthly salary was lower than the salary of the lowest paid male workers. Why didn’t she ask for more? Ledbetter said that this was because she simply had no idea that she was getting paid so much less than the men for doing the same work!

The US Supreme Court decided against Ledbetter by a 5-4 margin arguing that the statute of limitations had passed since she did not file suit within 180 days of the first act of discrimination as was required by law. In January 2009 one of the first bills that President Barack Obama signed into law is the Lilly Ledbetter Fair Pay Act which got rid of this 180 day filing requirement.

Women, here and elsewhere, are not asking for a hand-out. They are asking to be paid the same wage as men for the same work, an idea that is fundamental to democratic ideals of equity and justice. Catherine Delahunty’s bill which proposes to amend the Equal Pay Act by allowing for gender pay comparisons in the work place will help reduce the disparity in pay between men and women. It will prevent others from suffering the same fate as Lilly Ledbetter. It is an important step forward for achieving the goal of gender pay equity.

I wrote this article as a response to comments made by Alasdair Thomson, the Chief Executive of Employers and Manufacturers Association. Related articles on the topic in the New Zealand Herald:

Call for employers' chief to resign after 'insult to women

Alasdair Thompson walks off interview over 'sexist' claims

Monday, June 6, 2011

Murray Deaker's comments

I do not really expect much in the way of scholarship, thoughtfuness or intellectual depth from radio and television commentators in New Zealand. It is a small country and obviously draws from a very shallow talent pool. But is it too much to expect that they will stay away giving vent to their latent racism while on air? In recent years we had Paul Holmes calling the UN Secretary General a "cheeky darky". Then came the asinine jokes from the crude Paul Henry. Now we have Murray Deaker with his euphemism for blacks.

The strange thing is that in each of these cases the employers of these commentators, rather than expressing their dismay and condemning the comments, jumped up to defend these people and suggested that it was not a big deal.

It is a very big deal. Of course, I have no delusions that these people will turn into enlightened souls any time soon. But could we at least expect their employers to set slightly higher standards and ask their commentators to keep a check on the racist remarks during a broadcast? And how about the Broadcasting Standards Authority? Does it have any teeth at all?

Wednesday, June 1, 2011

We should not make our bill payments records public

(A version of this blog appeared as a perspectives article in the New Zealand Herald on June 1, 2011 under the title "Banks put vulnerable at risk from predatory lending")

We should not make our bill payments records available to lenders. Doing so has the potential of exposing consumers to predatory lending practices which ultimately will not serve our best interests. I will come back to this shortly.

According to the banking industry this is all about being a responsible consumer. The idea is that paying your bills on time will help you get a better credit rating and better access to loans. Those who are struggling with their bills will not be given any more credit to prevent them from piling up debt.

If you buy that argument, then you should also buy the argument that with all those sub-prime loans that the banks handed out, they just made honest mistakes. They did not realize that they were making loans to people who would not be able to repay. If only they had access to the debtors’ bill payments history they never would have advanced those loans!

Suppose for the moment that banks are really concerned with credit-worthiness and want to figure out who would be diligent about repaying the loans and who not.

They have adequate means at their disposal right now. They can ask you whether you have a steady income or not and how much money you make. They can ask you for your payslips and for your bank statements. And you know what - if they really wanted - they can ask you about your payment history as well!

For most of the transactions we engage in such as telephone and utilities payments our past bills and payment records (usually up to a year’s worth) are available on-line. All you have to do is to log in to your account and print them out. Getting an online account is free and so is printing out the past bills. If you want you are at liberty to provide this information to your bank.

There is absolutely no reason why all of us should be subjected to this massive intrusion on our privacy just to help banks figure out who is credit-worthy and who is not.

So what is it about then? This is, I believe, to a large extent about credit card debt.

A lot of our household debt is carried on credit cards. According to the Reserve Bank, at present the total amount of outstanding credit debt in New Zealand is approximately $5.4 billion and the average interest rate on these is 18.8%. Our banks are raking in a little over $1 billion in interest payments on credit card debt.

According to Dan Ariely, a professor at Duke University and author of the book “Predictably Irrational” “the average American family has six credit cards (in 2005 alone, Americans received 6 billion direct-mail solicitations for credit cards). ...the average debt on these cards is US $9,000; and seven in ten households borrow on credit cards to cover such basic living expenses as food, utilities and clothing.”

And when it comes to credit cards, banks are actually looking for people who are having difficulties paying of their bills; people who will run up debts, carry the balance and keep making the exorbitant interest payments.

But how do you find the consumer that will keep on making the interest payments rather than paying off their balance? This is a little trickier. The bank cannot really say to you: so I hope you are not the type that likes to pay off your card balance at the end of every month; because what we are really looking for are people who will only pay the interest.

But if they can look at your bill payments history and see that you have had some trouble in that area, then they know who is a good mark and who is not. Then they know whose mailbox to stuff (or whose phone to call during dinner-time) with the announcement of an exciting new card offer of a low teaser interest of 5.99% for the first 6 months but then going up to 25.99% after that.

With the bill payment history available, finding desirable targets becomes easier. The lender can even tailor his appeal more specifically. Having trouble with the heat bill? What do you know, we have a credit card with a very low introductory rate that will also give you gift vouchers that you can use to pay for your heat!

Providing detailed records will place the more vulnerable consumers at much greater risk of being subjected to predatory lending practices.

Will our banks do this? Banks in other countries have certainly engaged in such practices. But, at the very least, making our records available makes it possible to exploit such information to the detriment of consumer interest. The downside to making such records public should be obvious.
What is the upside?

Why would the banks wish to promote consumer responsibility, when their profits depend crucially on consumers behaving irresponsibly?