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Commentary: Making sense of the 'wage gap'

Rachel Greszler, The Heritage Foundation on

Published in Op Eds

What’s behind the wage gap between men and women?

It has narrowed recently. In 2023, women’s median weekly wages of $1,005 equaled 84% of men’s $1,202 in weekly wages. That’s an all-time high, and a distinct uptick from a fairly steady 80% to 82% between 2004 and 2020.

Yet 84% is still not 100%, even though equal pay for equal work has been the law of the land since the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964.

So what gives? Are women really being paid only 84 cents on the dollar to do the exact same jobs as men?

Of course not. In this day and age, that simply wouldn’t fly. For starters, there are currently 2.3 million more job openings than there are unemployed workers. So any woman who is being paid less than a male co-worker for the exact same job has a good shot at finding a new job where she will be paid equally.

And even if workers didn’t have the upper hand in the labor market, it never profits employers to underpay women or overpay men. Employers who discriminate based on sex—or age, or eye color, or shoe size, or any other biological factor—will disproportionately attract the types of workers whom they overpay. Excessive employee costs translate to lower profits, less investment and higher prices for customers, who will flock to businesses with lower prices.

Then what is behind the significant difference in pay between men and women?

The short answer is that the pay gap is a choice gap.

The data cited in the gender pay gap looks only at the median earnings of full-time wage and salaried workers. It doesn’t account for important factors such as education, occupation, experience and hours, which account for nearly all the difference in earnings between men and women.

Accounting for all these measurable factors all but eliminates the pay gap to a mere one-cent differential.

Even that “controlled pay gap” doesn’t account for difficult-to-measure factors such as workplace flexibility, which women, and particularly mothers, tend to prioritize. An analysis of Uber drivers estimated that they value the flexibility the platform provides at $150 per week.

 

Although the true pay gap is miniscule, some policymakers still want to see women earning the same amounts as men. The problem with trying to force equal earnings is that it could only be done by forcing women to make the same choices as men, or vice versa.

Take the Massachusetts Transportation Bay Association, for example. Despite rigid pay scales that precluded pay discrimination, the association had an 11% pay gap because women took more unpaid leave and worked fewer overtime hours. When the company restricted flexibility in hours worked, the pay gap fell to 6%, but the lost flexibility was “especially costly” for women.

Both Sweden and Norway tried to help women by passing “daddy quotas” intended to push men to take on more of the responsibilities of parenthood. Norway’s daddy quota had “strong and statistically significant negative effects on women’s labor market outcomes.” Sweden’s daddy quota didn’t increase men’s household roles or improve women’s labor market outcomes, but it did increase the probability of divorce and reduce household incomes because women took more unpaid time off.

Google, in an attempt to remedy pay gaps, began conducting a pay audit every year and established a fund to compensate employees who it found had been unfairly compensated. Google’s analysis had a surprising result; the company was underpaying men. Consequently, the majority of Google’s $9.7 million in gender-compensation awards in 2019 went to men.

While it can be tempting for policymakers to try to “help” women or minorities by imposing top-down government controls that attempt to equalize pay across gender or race, those policies could end up hurting the people they intend to help.

At the end of the day, most workers—men and women alike—want to be paid based on what they produce, and they want job opportunities that align with their personal and career priorities.

Instead of telling companies how much to pay their workers, and limiting the types of jobs available, lawmakers should work to reduce barriers to work and burdens on job creators so that more women and men can attain the type of work that’s best for them.

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Rachel Greszler is a Senior Research Fellow in workforce and public finance in the Roe Institute at The Heritage Foundation.

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