The Free Market 17, no. 3 (March 1999)
The Equal Pay Act of 1963 trampled on the rights of states to regulate their own labor markets, by overturning local laws enacted to protect women from working long hours, working at night, lifting heavy objects, and working during pregnancy. In addition, the 1963 law prohibited employers and employees from voluntarily agreeing to separate pay scales for men and women.
President Clinton wants to do even more. His proposed expansion adds “full compensatory and punitive” (read: envy-driven) damages. It punishes employers that seek to reduce employee strife by keeping salaries private. It will also “recognize and promote” firms that “have made strides to eliminate pay disparities.” In other words, it will subsidize inefficiency and transfer wealth to firms with more equal-paying jobs from firms with a greater range of wages.
Supporters of equal-pay regulations make much of the “76-cent statistic.” The Department of Labor’s Women’s Bureau, a product of the twilight of the Progressive Era, has issued a report claiming that the average woman earns 76 cents for every dollar the average man makes. The President’s Council of Economic Advisors says the ratio is 75 cents for every dollar a man earns.
It is the bread and butter of politicians to take such statistics, mix them with an ill-formulated version of the law of “one price,” and turn out a bitter brew of labor-market intervention. Goods considered equal by their demanders will indeed be sold for the same price throughout the market. But the sameness between the goods is not determined by the physical characteristics of the good in question, but by the demander. Hence, it is possible that for some tasks, both men and women are perceived as practically identical. In these markets, one would expect that the earnings by men and women are virtually the same.
Indeed, when the data are broken down, this is what one finds. Don’t compare the “average” man and the “average” woman; compare men and women of similar ages, education, major fields of study, occupation, and marital status. The so-called “earnings gap” shrinks dramatically. Even the government admits that, statistically, only one-third of the 24-cent pay gap is “unexplained” by the above mentioned factors.
In other words, only an 8-cent difference is unexplained. Of course, this 8-cent “unexplained” pay difference is written off by the administration as sexual discrimination. It never occurs to them (they do not want it to) that the remaining perceived 8-cent pay gap for similar-appearing men and women is due to things that are immeasurable.
There are many cases in which women are actually earning more than men. Beating the state at its own statistical game, for example, women aged 35 44, who graduated with a bachelor’s degree in communications and are employed in a marketing occupation, earn $1.30 for every dollar a similar man makes.
If the “76-cent statistic” is evidence of workplace discrimination against women in general, why is the “$1.30 statistic” not evidence of discrimination against men in the marketing industry? In reality, what counts to employers is not averages at all, but how much will a particular applicant contribute to my firm? There is no way for a government bureaucrat to know this in advance.
What they should know, however, is that there are good reasons why the “average” woman earns less than the “average” man, almost all of which are connected to the fact that a woman’s primary concern tends to be her family. The big difference between men and women is how they react to marriage and child-birth. Marriage tends to increase men’s participation in the labor force and decrease women’s. The hours men work tend to increase with the birth of a child. Hours that women work tend to decrease when a child is born. Mothers tend to work less overtime and take fewer jobs requiring them to work long hours in return for high pay than fathers do.
Marriage and child rearing contribute to a number of choices that women make that place them on a lower earning trajectory over time. Women have higher turnover rates and fewer continuous years on a single job than men do. More women work part-time jobs than men do, so they can devote time to the family. They also have a higher absence rate than men. Further, women tend to take those occupations where an absence of five to six years to raise a pre-schooler will not make them obsolete.
A five-year layoff from teaching in the public-school system will not damage a woman’s earnings nearly as much as if she left the computer software industry for five years. Additionally, women tend to drop out of the labor force more completely than men do after children enter the picture. In fact, for those individuals not looking for work in 1996, almost five times as many women than men said they were not pursuing employment due to family responsibilities. Finally, wives tend to follow their husbands in pursuit of employment rather than the other way around. Hence, while a husband usually chooses his best earning opportunity, wives tend to choose their best earning option, given where the family moves. Recognizing the divergent paths women and men expect their careers to take after childbirth, it should not surprise anyone that women have fewer incentives to invest in education and training because they are expecting a shorter career in the labor market than men are.
It also should not surprise anyone that employers take these possibilities into account when deciding to hire someone. An employer rarely hires a person for only a day. The employer begins a relationship with that worker, often putting substantial resources into training his new recruit. He may be less likely to hire a woman to fill a crucial position that may require substantial training expenditures, recognizing that the newly hired woman may quit whenever she has children. This is even more true now that the government has saddled firms with mandated family-leave regulations.
That family ties are the primary reason behind male/female pay differentials is born out by a glance at demographic changes over the past hundred years. From the mid-1800s to the 1930s, the fertility rates in the United States declined, but then increased through the mid-1950s. Up to the 1930s, more and more women felt free to enter the labor force. Indeed, the 1902 Who’s Who in America had more than twice as many entries for women as did the 1958 edition. In both 1921 and 1932, 17 percent of all doctorates awarded were to women. Following the rise in the birth rate, that percentage was down to 10 percent by the late 1950s. The percentage of professional and technical occupations (jobs that tended to pay well) held by women decreased by 9 percent from 1940 to 1950.
Then fertility rates began to decline again. From 1950 through 1990, the birth rate fell by 36.7 percent. Women began entering the labor force. The number of professional and technical occupations held by females increased from 11 percent in the 1960s to 14 percent in the 1970s. From 1975 to 1995 women’s share of professional jobs increased 82 percent. The increase for technical jobs was 79 percent.
All of this demonstrates that the performance of women’s earnings over time is not the result of systematic discrimination. Whether egalitarians like it or not, for the “average” woman family life trumps other concerns on the margin. Employers and employees are merely recognizing this fact of nature: women and men are not equal in the sense of being identical. They are different and have different comparative advantages when it comes to work outside the home versus child rearing.
Of course, both men and women would like to work for much more than what they are getting paid, other things equal. But then, the other things are never equal. That fact serves as a useful device for egalitarian politicians and bureaucrats. Social engineers use the persistence of inequality of income as the warrant for never-ending regulation.
Shawn Ritenour, who teaches economics at Southwest Baptist University, is an adjunct scholar of the Mises Institute.
FURTHER READING: “Statistics: Achilles’ Heel of Government,” by Murray Rothbard, in Logic of Action (Edward Elgar, 1997).
