Women's Wages Redux

It is a widely held view that women are discriminated against in wages and employment in the marketplace. When I first published research on this subject in 1984, the statistic often cited was that women earned on average less than two-thirds of what their male counterparts earned. In addition, other statistics showed that women were not evenly represented in all occupations. For example, women held over 95 percent of nursing and secretarial positions, but less than a third of the jobs in engineering, construction and the technical professions.   

Such statistics were commonly used as evidence of widespread discrimination against women in the marketplace.  Now, nearly 40 years later, gender disparity in wages (the “gender gap”) is still seen as a phenomenon of discrimination.  The US Census, in 2019, measured the female wage at 84 percent of the male wage—up significantly from the 66 percent of 40 years ago..   

Figure 1:  Trends in Male and Female Wages

This was mostly a consequence of the increase in female labor force participation in this period.  Nonetheless, the mantra remains in vogue that wage discrimination is the cause of the remaining gender gap in wages. Indeed, a 2017 Pew Research Center survey reported that 42 percent of working women said they had “experienced gender discrimination at work” and “one-in-four employed women said they had earned less than a man” doing the same job.  US Census staff, in a 2020 survey study, seem to attribute the gap to biases in occupation.  This blog argues that true discrimination was an overstated cause of the wage gap 40 year ago when I first studied it, and remains so today.  This blog is not about wage differences.  It is about true discrimination, which involves employers who are biased to the point they are willing to sacrifice productivity and profits by overpaying men or failing to hire qualified women.  

The reasons that I am dubious about the role of discrimination is simple.  First, in a competitive labor and product market, competition exerts strong forces to punish such discrimination. If a firm truly could hire females who were exactly as productive as males and save 15 to 40 percent of its wage costs in doing so, that firm would have a serious cost advantage over its competitors.  According to the NYU Stern database of 7,000 US firms, the median rate of profit is just 6 percent.  Prejudiced employers, by failing to economize on labor, would be driven out of the marketplace by more profitable, unprejudiced employers.  

Second, gender differences in pay can also arise, of course, because of readily measurable, objective differences in factors that make males and females differentially productive.   Such factors include education, specific job experience, specific training, tenure in the work force, and other so-called human capital characteristics.  Numerous studies have found that such differences in human capital endowments explain much of the Census-defined gender wage gap.  The study by Blau and Kahn is one of many such recent studies.  

The third factor is that the wage gap is the consequence of voluntary choices.  I believe it is unreasonable to expect that wages, labor force participation, and the complexion of careers are unaffected by voluntary behavioral differences of the the genders.  Ofek and Haim and this author demonstrated decades ago that the interruption of employment (by either males or females) results in a depression of wage rates by 5 to 10 percent, for each year of interruption.  Interrupting paid employment to have and raise children is a voluntary behavior that is particularly important to women, and bound to influence wages and careers.

Voluntary Behavior:  Is this the Last Word in the Wage Gap Debate?

In 2018, Bolotnyy and Emanuel, obtained confidential data on the activities and time billings of male and female transit drivers at the Massachusetts Bay Transportation Authority (MBTA).  The MBTA’s transit operators are all covered by the same employment agreement. The seniority of the genders is the sole determinant of work opportunities.  Thus, men and women face the same choices among “schedules, routes, vacation days, and overtime hours, among other amenities.” In other words, there is virtually no opportunity for management to discriminate in favor of one gender over the other.

Nevertheless, a weekly earning gap persists.  Specifically, female operators earn only 89 percent of that of the male operators.  This wage gap is eerily close to the wage gap found by others in more complex and discretionary settings after controlling for human capital and work interruption differences. Detailed examination of the causes for the persistence of the wage gap suggest that women have different preferences.  Relatively speaking, women appear to dislike working weekends, holidays, and split shifts more than men. Women also trade off the desirable routes against desirable schedules in different ways.  All of these and other behaviors have a link to operator compensation and, thus, to the appearance of a wage gap.  

On balance, the authors explain the persistence of a wage gap by the fact that women appear to value time and flexibility more than men.  Both of these aspects of voluntary behavior could be common to many job settings.  Additionally, because promotion is based on tenure only in the MBTA setting, the study fails to support the common view that the female wage gap exists because managers apply differential and discriminatory promotion standards to men and women.  Indeed, if voluntary behavior has such a significant effect on relative male-female wages in the MBTA setting, the common assertion that such wage gaps observed elsewhere are due to discrimination deserves serious reconsideration.    

Sources:

Mincer, Jacob, and Iliam Ofek, 1982. “Interrupted Work Careers: Depreciation and Restoration of Human Capital,”  The Journal of Human Resources, Vol. 17, No. 1, pp. 3-24.  

Pozdena, Randall. 1984. “Women’s Wages” Weekly Letter, Federal Reserve Bank of San Francisco, June 8, 1984.

Blau, Francine D., and Lawrence M. Kahn. 2017. "The Gender Wage Gap: Extent, Trends, and Explanations." Journal of Economic Literature, 55 (3): 789-865  

Pew Online Survey, Gender discrimination comes in many forms for today’s working women, December 14, 2017 https://www.pewresearch.org/fact-tank/2017/12/14/gender-discrimination-comes-in-many-forms-for-todays-working-women/

Bolotnyy V, Emanuel N. (2020). Why Do Women Earn Less Than Men? Evidence from Bus and Train Operators. Harvard University Working Paper, 

Foster, Thomas B., Marta Murray-Close, and Lean Christin Landivar. 2020.   “An Evaluation of the Gender Wage Gap Using Linked Survey and Administrative Data,” US Census Bureau for Bureau of Labor Statistics, November, 2020.  

Gender pay gap in U.S. held steady in 2020 | Pew Research Center, accessed 5/31/21. 

Capitalism and the Climate

It is a commonly repeated urban myth that our capitalist system is to blame for the accumulation of carbon dioxide in the atmosphere.  Some environmentalists believe this is justification for creating an omnipotent system of regulation to deal with atmospheric carbon accumulation.  This is argued to be a more direct way of reducing carbon accumulation than relying on the market.    

In reality, of course, that belief is based on erroneous premises.  First, no one seeks to use energy just to be wasteful.  Energy is not used for its own sake.  That is, energy is not a consumption good that provides users with benefits directly.  Rather, it provides users mobility, light, heat, etc. for our homes, transportation, and industrial and agricultural activities—the things that a society wants.  In the end, these activities power the economy and yield the gross domestic product that represents the aggregate improvement in well-being that Americans are seeking.  Hence, no private sector party actually wants to use energy and emit carbon at all, let alone excessively.  

Second, the market economy demonstrably does an exquisite job in rationing the use of energy.  A simple look at the trends in economic activity, energy use, and carbon emissions has been very effective in using energy efficiently.  In the figure below, we can easily see the evidence of the market’s ability to spare the use of energy in the economy, and with it, produce less and less carbon emissions as it does so.  The graphic presents data from the 72 year period from 1949 to 2021.  In that time, total GDP in real terms has increased by a factor of 9 times, while the use of energy in the economy has increased by a factor of only 3 times.  

Figure 1.  Trends in GDP, Energy and CO2

Mathematically, that implies an increase in economic growth of 3 percent per annum on a continuous, compounded basis, versus an increase in energy use of only 1.5 percent per annum.  Hence, the energy efficiency of US GDP production has grown in real terms by 1.2 percent per annum, continuously over 70 years.   

Meanwhile, the economy has been increasingly sparing of carbon emissions.  The so-called energy intensity of the US economy has fallen by a factor of 4 over that same 70 period. 

Thus, the tonnage of carbon emissions per dollar of US GDP has fallen by 2 percent per annum on a continuous, compound basis since 1949.  It has done this, almost exclusively on its own by economizing on use of carbonaceous fuels and shifting away from more emissive economic sectors.  

By implication, any premature acceleration in energy use—beyond the rate at which efficient opportunities are available—would likely reduce GDP.  If better efficiency opportunities were available, the profit oriented market would have taken advantage of it.  That is, profit seeking would have accelerated even more had doing so not led to the reduction of economic output.  Conversely, forcing the reduction in energy use prematurely would have reduced profit and/or output.  This is a complex and subtle calculation that only a crowd of private million market participants can make successfully.  Government has yet to prove emulate market efficiency through administrative means.  

Figure 2.  US Energy Efficiency Trend, 1949-2049 

Climate scientists are urging that reduction in carbonaceous energy use be accelerated.  This is to avoid pushing the natural systems that regulate the earth’s temperature beyond a tipping point leaves natural systems in an unstable state.  This is a possibility, of course, because the atmospheric temperature is not directly part of the calculus that the private market uses to make its calculations.  However, it is interesting to note that admittedly simple projections of tons of CO2 per dollars of real GDP in the future below suggest that the US can reach near zero net carbon before 2050 without government intervention.  

 

Indeed, the historic trend suggests that on that track today on its own.  Even if that 70-year trend is a statistical artifact, a simple market-oriented nudge by a revenue-neutral carbon tax could be used to accelerate the reduction in use of carbonaceous fuels at least impact to the economy.  A recent study by economists at Columbia University confirms that conclusion.  Specifically, the use of a revenue neutral carbon tax has the virtue of using the tools of the engine of capitalism—pricing and profit, but without heavy-handed government intervention.  Rather, the return of the revenue to the general public in a tax-revenue dividend leaves the wealth of the payers of tax largely undiminished and thus the economy relatively undistorted.  Such a tax is in place in British Columbia and has been proposed in the US Congress. 

Sources:

Noah Kaufman, et al., An Assessment of the Energy, Innovation and Carbon Dividend Act, Columbia Energy Policy Center, November  6, 2019, https://www.energypolicy.columbia.edu/research/report/assessment-energy-innovation-and-carbon-dividend-act

https://www.un.org/sg/en/content/sg/articles/2020-12-11/carbon-neutrality-2050-theworld’s-most-urgent-mission