Ruminations on Equal Pay Day

Today is Equal Pay Day, which means two things are certain: 1) some groups will be arguing that the pay gap is very real and must be addressed and 2) some groups will be arguing the pay gap is a myth and should be dismissed.  Both groups are simultaneously right and wrong.  It is true that, adjusting for various economic factors, much of the pay gap goes away (Group 2 is correct).  However, it is also true that there is some gap that remains which could be due to discrimination (Group 1 is correct).

But economics is limited in this story.  We can provide economic explanations, but there are other factors that other fields could provide insight into as well.  For example, why is it that there is an unadjusted 80-cent gap to begin with?  Are women encouraged to avoid the higher-paying fields?  Sociology could help answer that.  Are women just worse negotiators then men?  Psychology could help answer that.  Are the biological differences that could account?  Biology could help answer that.  Is there legislation that encourages discriminatory hiring practices?  Legal studies can help answer that.  These various disciplines could provide valuable insights.

A mistake I think many economists make (myself included) is sometimes thinking the economic way of thinking is the only way of thinking.  It is powerful, to be sure, but it is not alone.  We can help provide some answers (like on the pay gap) but not all the answers (nor should we.  Division of labor).

My two cents on the pay gap: Is discrimination an explanation for the difference between men’s and women’s pay?  It’s probable; the size of the effect is difficult to know.  Unlikely responsible for a large portion.  Is government the solution?  Possibly.  If the issue is poor incentives from legislation, then government would have to repeal such legislation.  If there are other causes, governmental interference would likely cause more harm than good.

I think the pay gap deserves more thought than many economists are willing to give it, and it especially deserves thought from the sociologists and legal scholars (my gut feeling is that is where we will find much of the gap explained).

2 thoughts on “Ruminations on Equal Pay Day

  1. Economics really does explain it pretty well. There is only a gap in MONETARY compensation. But the compensation for work involves non-monetary as well as monetary compensation. For example, some people place a higher compensatory value on working in a safe, clean environment doing tasks with minimal physical exertion than do others. Those people will accept less monetary compensation for that non-monetary benefit. That there are differences in this preference between men and women should not be at all surprising. I suppose you can examine why men and women might have different preferences for different types of compensation, but it can still be explained pretty well by an economic model.

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  2. “It is true that, adjusting for various economic factors, much of the pay gap goes away (Group 2 is correct).”

    Group 2 is mostly correct. Much of the pay gap goes away when one examines the available data.

    “However, it is also true that there is some gap that remains which could be due to discrimination (Group 1 is correct).”

    Group 1 may be partially correct. The problem is that we do not know for certain.

    Does discrimination occur based on gender? Yes. Female models make much more than the male models do. Male basketball players make much more than female basketball players do. One could argue that male and female models and basketball players do the same type of work, and, on surface, they do. But, the reality is that the consumer pays for everything. And, the consumer discriminates based on gender. Is that bad? No.

    Now, do male bank tellers get paid more than female bank tellers? No. Do male grocery store clerks get paid more than female grocery store clerks? No. Do male attorneys and doctors get paid more than female ones? Perhaps. It all depends on the clients.

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