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

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