Equal pay legislation and the gender wage gap Updated

Discrimination

Outright corporate discrimination is the motivation in several theories. Of these, one is corporate monopsony power, given that there are far fewer employers (buyers of labor) than employees (sellers of labor). Another is employer misperceptions regarding women's relative productivity (statistical discrimination). Another is male employees’ distaste for working with female fellow employees. Finally, another is consumer distaste for purchasing products made or sold by women. While each of these discrimination theories ring true in some way, they are all inconsistent with the evidence.

Take each in turn. Paying higher wages to men for the same job (outright corporate discrimination) is incompatible with profit maximization: profits sink when a firm pays men more, rather than hiring less expensive female employees. Stereotyping based on statistical discrimination is possible in the short term, but surely not in the longer term. Firms cannot sustain long-term losses in a competitive environment either by paying men more or by promoting less qualified men over more qualified women, or simply by misjudging women's abilities. A male distaste for female co-workers is possible, but if so this distaste should result in gender-segregated work environments, not gender wage differences within the company. Consumer distaste for products made and sold by women is also possible, but all too often consumers are not aware who actually makes a product. Relative wages for females in sales roles, an occupation with direct consumer contact, are no different from those in other occupations. Women earn less than men in (almost) all of the most common occupations, including sales. Recent evidence on Uber driver data, where wages are based solely on productivity, also confirms lower female wages.

Each type of possible discrimination is inconsistent with negligible wage differences among single non-cohabitating childless and younger employees compared with the large gap among married or cohabitating men and women (especially those with children, and even more so for those who space children widely apart). Again, why would companies discriminate against married women, and even more so against married women with children, but not against younger women, or singles? If employers discriminate based on misperceptions of worker productivity or male employee (offensive or derogatory) feelings about working with women, then why do they discriminate against married women, but not single women? Why should children (especially widely spaced children) exacerbate the level of discrimination?

Psychological differences

Additionally, some recent research contends innate psychological factors that differentiate men and women serve as a possible explanation. These studies encompass attitudinal differences toward risk, competition, and negotiation prowess. Mostly based on laboratory studies, they argue women are more risk averse, dislike competition, and are reluctant to negotiate job promotions and pay raises. However, at least with respect to risk, some allege many of the lab experiments overstate these effects because publication bias leads journals to accept more studies finding gender differences than not [5]. Nevertheless, even if true, for policy purposes it must be established whether these gender differences are innate, perhaps biological in that men and women are “hardwired” differently, or whether these differences in traits are motivated by environmental sociological considerations. But in any case these studies do not concentrate on age or marital status differences, so even if true, they too cannot explain why marriage (cohabitation) and children are associated with a large gender pay gap while being single is associated with a small pay gap. Nor do these psychological factors explain the age-related patterns or the secular convergence in male and female wages over the last century.

Physiological differences

One biological factor relates to the marital wage gap as well as the observed long-term secular wage convergence. Human capital theory argues that men and women invest differently in training based on expected lifetime work. Division of labor in the home typically leads husbands to specialize in paid work, whereas wives do not. Time budget studies confirm married men spend less time in household activities and more time at work than their wives. One reason for this division of labor is husbands are generally older and often more educated than their wives. This husband age advantage instigates division of labor because husbands’ earnings potential exceeds their wives’ earnings potential, even at the outset of marriage.

But why are men generally older than their wives? An important underlying factor in marriage is the demand for children. In that light, as far as fecundity is concerned, the biological clock runs out more quickly for women than men. It is therefore understandable that younger wives are more valuable for procreation. Men, however, have the biological advantage of being able to procreate whether they are younger or older. As seen in the US and Canada, where over time the demand for children has diminished, the husband-wife age gap has narrowed, and the gender wage gap has declined [6].

Audit and correspondence studies

Few studies estimate discrimination directly. However, audit studies represent one approach that attempts to catch firms in the act. Early studies of this type sent pairs of trained auditors, matched in all respects except the variable being tested (typically gender or race), to rent an apartment, purchase a house, or get a loan. This method has also been used to explore labor markets. Now called correspondence studies because rather than trained auditors, matched resumes are submitted in response to job advertisements for pairs of job-seekers, again presumably equal in all respects except race or gender. In this case, gender discrimination arises if resumes containing male names get more callbacks than female resumes.

One often-cited study focuses on race, but by sending out resumes with both (white and African-American) male and female names the research also sheds light on gender [7]. This study finds no evidence in the US that firms call women back for interviews less frequently than men. Indeed, it appears women are called back about 12% more than men once a job application is submitted. An audit study of restaurant hiring finds no gender effects in job offers or interviews in low- and medium-price establishments, although there are significant differences in favor of men for high-price venues.

With respect to other countries, a correspondence study in Chile finds no significant differences in callback rates across groups based on equivalent resumes varying only in gender, name and surname, and place of residence. On the other hand, a study using data derived from an Australian experiment finds that female candidates are more likely to receive a callback, with the difference being largest in occupations that are more female-dominated. A comparable study in Sweden finds women get 15% more callbacks than men. Similarly, a correspondence study in China taking account of facial attractiveness as well as gender finds women have a 10% higher callback rate than men. Thus studies attempting to estimate discrimination directly do not find strong gender differences in the hiring process.

Affirmative action

Because of difficulties in evaluating government legislation, there are only a few impact studies on equal pay legislation and on more general affirmative action policies, and they yield mixed results. An early analysis based on US data indicates that, despite the introduction of the 1963 Equal Pay Act and Title VII of the 1964 Civil Rights Act, between 1967 and 1974 the male–female earnings differential remained virtually unchanged at 0.68. However, the analysis explains part of this result as possibly being due to the rapid rise in young women's labor force participation (therefore commanding lower wages because of oversupply), rather than the ineffectiveness of the laws.

With regard to racial employment and wages, studies find that most wage gains occurred prior to the establishment of an effective monitoring structure for affirmative action, leading to skepticism about the effects of the law. Other studies find virtually no effect arising from affirmative action during the 1980s. Reinforcing this, a recent field experiment finds relatively fewer minorities applied to job advertisements that included an Equal Employment Opportunity (EEO) statement, essentially to avoid the stigma of being a token hire [8].

A study based on California's Proposition 209, which ended the state's affirmative action programs in education, public employment, and government contracting, concludes that the affirmative action program was either inefficient or failed to change employers’ attitudes [9]. Another study analyzing state laws that target pay discrimination finds strong evidence that such laws actually decrease relative female employment mostly because they make female labor relatively more expensive. To be fair, advocates of affirmative action legislation argue that the laws do not go far enough: they endorse more comprehensive legislation, including comparable worth, in which men and women are paid based on skill levels rather than on specific jobs.

The weak effects of affirmative action are also observed outside the US. A survey of six countries from 2003 concludes that “there is no universal panacea or prescription for resolving the employment problems of disadvantaged groups,” since current legislation has “achieved mixed success” [10], p. 214.

Such sentiment is echoed in other country-specific studies. For example, one study finds the Canadian 1989 Ontario Pay Equity Act, said to be one of the most extensive pieces of equal pay legislation, did not reduce the gender pay gap. Another study has shown that since Japan's Equal Employment Opportunity Law (EEOL) was implemented in 1986, the labor force participation rate for women aged 20–59 years rose from 57.7% in 1980 to 68.5% by 2007. However, women's participation was increasing anyway because of a number of demographic trends (such as women tending to marry later, or not at all, after graduating from university). The evidence that labor force participation increased because of the legislation was thus not proved. Similarly, although a study based on an examination of equal opportunity progress reports filed in the Australian transport industry finds an increased number of women employees in some areas, there are limited increases in the number of women in management.

Importance of human capital accumulation

Strong evidence supports the idea of accumulated human capital as a reason for the gender wage gap. A series of research studies (beginning with [4]) develop a technique to assess the importance of human capital. The technique estimates the amount of human capital a person accumulates based on expected lifetime work. It then determines how well these estimates predict actual earnings. When applied to gender wage differences, it explains between 85% and 100% of the earnings gap. The technique has also been applied within gender to explain marital status differences in earnings (i.e. why single men earn less than married men, but why single women earn more than married women). In the latter case, discrimination is not an issue, since wages are examined solely for men and solely for women. Here, between 75% and 87% of the marital status differences in earnings are explained by human capital.

Other predictions of the human capital framework are also upheld. The gender earnings gap has consistently declined over the last two centuries in the US from approximately 70% in the early 1800s to the current 18%. Concomitant with this secular decline in the gender earnings gap, female lifetime work has increased dramatically, while male lifetime work has declined moderately. These gender shifts in lifetime work imply relatively more female than male human capital investment. As a result, human capital theory predicts women's earnings should have increased relative to men’s, and this is precisely what is observed. Newer research attributes this to a long-term declining trend in the demand for children which has led to smaller age and schooling differences between husbands and wives (and male and female cohabitating partners), and not EEO legislation [6].