|American Enterprise Institute (AEI)
Andrew Biggs (Resident Scholar) and Mark Perry (Scholar)
During his re-election campaign in 2012, President Obama claimed that women working full-time are being paid 23% less than men for doing the same work. Last month, the Obama administration recognized so-called “Equal Pay Day,” an annual event designed to bring attention to the “gender pay gap” that, they claim, pays American women only 77 cents for each dollar earned by men. That effort, however, was a public relations debacle, and was described by various commentators as “paycheck poppycock,” a “deceptive crusade,” an “ignoble lie,” the “equal pay canard,” “revolting equal pay demagoguery,” a “statistical fraud” and the “bogus 77 cent differential.”
The reason the 77 cents figure was so widely derided, even by some on the left, is that it does not account for the fact that men work longer hours than women, at more dangerous and financially risky jobs, have greater years of continuous work experience on average, and choose college majors with more value in the marketplace. Even many White House allies have had to acknowledge the reality that only a small part of the overall male-female pay difference is attributable to labor market discrimination.
How much gender discrimination actually exists? We don’t know for sure, though economists June O’Neil – a former Congressional Budget Office Director – and Dave O’Neill estimate that after accounting for known factors affecting pay, the unexplained pay gap that could potentially arise from discrimination lies between zero and five percent. That’s a lot different than Obama’s claim of 23 percent.
The fallback position for progressives has been to acknowledge that these factors matter, but that “background discrimination” drives women’s choices toward careers with lower pay. To some degree, this simply seems demeaning: surely, an adult woman attending college can understand her choice to major in, say, sociology as well as a male student understands his choice to major in economics.
Recently, the American Association of University Women published a study claiming that a significant gender pay gap exists for new college graduates even after controlling for differences in college majors, occupations and other factors. If true, this would show that the main reason for the male-female pay gap – women’s shorter work hours and time spent out of the labor force after having children – wasn’t the real story. Except that the AAUW study actually leaves a lot out. For instance, the study lumps economics majors together with sociology majors as a single “social science” group. But economics majors have an average starting salary of $50,100, while sociology majors have an average starting salary of $37,400. Economics majors are 70 percent male, while sociology majors are 70 percent female. Failing to control for specific majors creates a gender pay gap where none really exists. The AAUW study is certainly better than the White House’s “77 cents on the dollar” claim, but analyzing Census data and controlling for specific college majors shows almost no gender pay gap for new college graduates.
Some gender discrimination in the labor market certainly does exist. But the best solution isn’t more lawsuits. In fact, the Obama administration’s proposal to shift the burden of proof in gender discrimination cases against employers would make hiring a female employee a potential legal liability for employers, and thus employers would hire fewer women.
What female workers need is a vibrant and competitive workplace, since it is competition that weeds out discrimination. When one employer discriminates against women, a new employer could earn a windfall profit by hiring an all-female workforce and paying them slightly more. That process of profit-oriented competition works to reduce gender and other forms of discrimination in the labor market. Several studies have shown that as industries faced increased competition, through either deregulation or international trade, the gender pay gap shrank. And the pay gap is larger in monopoly markets without competition and smaller in start-ups and small businesses that must be productive in order to survive. Women need more markets, more enterprise, and more opportunity, not more regulation and litigation.
Ironically, even the Obama White House faced scrutiny recently for its own 12% gender pay gap, which is more than twice the 5% gender pay gap for Washington, D.C. It’s unlikely that the 12% gender pay gap at the White House is primarily explained by discrimination, just as it’s unlikely that the 23% national pay gap is primarily explained by gender discrimination. Women are much better served by the truth and accurate reporting about the gender pay gap than by misleading, exaggerated and false claims about a 23% discrimination-based nationwide pay gap.
|American Association of University Women (AAUW)
Lisa M. Maatz (Vice President of Government Relations)
On April 8, we witnessed an important step in the fight for equal pay for equal work. President Barack Obama signed two executive orders on Equal Pay Day that not only helped move the issue forward but also prompted a national conversation about how salary openness in the workplace can help close the gender pay gap.
At this point, most people recognize that a gender pay gap exists. They debate the statistics used to describe the size of the gap, disagree about what causes it, and differ on solutions to close it. But the overarching message is clear: The gap exists, and those who get the math intend to close it.
So what does the often-critiqued 77-cent statistic actually represent? It is an accurate comparison of the median earnings of all women working full time, year-round with the median earnings of all men working full time, year-round. The gap is dramatic, and it should motivate anyone concerned about basic fairness to dig deeper into its cause, as the American Association of University Women (AAUW) has done. Yes, some politicians and pundits misunderstand this statistic, but that doesn’t change the math or its accuracy.
In Graduating to a Pay Gap, AAUW found that just one year out of college, when workers are virtually equal in age, education, and family responsibilities, a gap of almost seven percent already exists between women’s and men’s wages. This gap exists after we controlled for factors known to affect earnings, such as major, occupation, and hours worked. And our AAUW study compared workers who do the same job — not rocket scientists to cosmetologists. Unbelievably, some people respond to this analysis by saying that seven percent is not a “significant” gender gap. But I’ll bet they don’t want to give up seven percent of their salary! A seven percent gap keeps some women from making ends meet, and the gap’s effects compound over time.
Despite apples-to-apples comparisons like AAUW’s, some people still credit the gap to factors such as education, men working hazardous jobs, and motherhood. AAUW research shows that education is indeed an effective tool for increasing earnings, but it is not a fully effective tool against the gender pay gap. At every level of academic achievement, women’s median earnings are less than men’s median earnings.
Although hazardous work is a legitimate reason for higher wages, women are sometimes unable to secure these higher-paying jobs because of outdated gender stereotypes about women in the workplace. And women aren’t the only parents in the workplace, but they are the only ones penalized for having children. Mothers earn less than women who don’t have children, even when they work full time. But fathers typically earn more than men who don’t have children, suggesting a clear bias about gender roles.
Although theories that try to justify the gender pay gap don’t ring true, they do acknowledge that the pay gap exists. And the public knows it, too — from recent stories about salaries at the White House and in the Ohio governor’s office that found pay gaps in both places. The White House salary data revealed that women and men are being paid the same for equal work but that an overall gap exists because more men hold leadership positions. That is still a problem, but it’s a different problem.
Despite this leadership gap in the White House — a gap AAUW is monitoring closely! — we applaud the president for his recent executive order giving federal contract workers, who make up almost a quarter of the nation’s workforce, the freedom to talk about their salaries without retaliation. The order doesn’t force companies to be transparent about salaries. It just allows employees to have conversations about equal pay for equal work, much like the conversation happening on this site and at dinner tables — as well as in statehouses — all across the United States.
Although the executive orders gave us reason to celebrate on Equal Pay Day this year, the work to close the gap is ongoing. AAUW is still pushing for Congress to pass the Paycheck Fairness Act, a much-needed update to the 51-year-old Equal Pay Act, and we look forward to further executive actions that will help make workplaces more family-friendly after the June 23 White House Working Families Summit. Our members will keep pushing for action at the state and local levels. And you can join the conversation through the AAUW Action Network. The more we talk about pay, the closer we’ll come to eliminating the gender pay gap and its Mad Men-era assumptions about women’s roles.