Some Thoughts on Long on the Gender Wage Gap

Rod has given us a hunk of economics and social analysis to chew on. I am largely in agreement with what he has to say, but I think there are some issues to clarify and expand upon.

Women on the job market make, on average, 75 cents for every dollar men make for the equivalent jobs.

Actually, this is only real problem in the piece.  The famous 75 cents figure is NOT based on "equivalent jobs," rather it's based on the average wage for working women and working men.  It does not take into account the kind of jobs people have, the training and education they have, their family situations, whether they work full-time or part-time, and so forth.  Studies that control for these sorts of variables continually narrow the gender wage gap.  Even just taking age into account changes matters:  the wage gap for men and women in their 20s, not controlling for any other variables, is notably smaller, with women earning over 90 cents on a dollar for men.  Not surprisingly, the gap is largest for older women.  Why "not surprisingly?"  The key is that younger women were more prepared to enter the job market - they are more likely to have college degrees etc..  Older women frequently found themselves employed when they didn't expect to be at a younger age, making it less likely they acquired skills that would make them productive. 

According to the National Longitudinal Study of Youth, in 1968, 28% of white women age 14-24 planned to work at age 35.  In 1980, more than 70% of them were in the labor force.  In 1979, 75% of women age 14-21 planned to work at age 35.  The women who were in that age group in the late 60s found themselves at age 35 and later in the workforce but underskilled.  They are still catching up.  Younger women haven't faced that problem, hence their wage gap is lower.  And note that this was about white women - the wage gap between black women and black men has always been narrower because black women have had higher labor force participation rates and have had greater expectations of working as adults, not to mention the various problems that lead to low wages for black men (war on drugs, crappy public schools, etc.).

Studies that have controlled for all the non-gender factors that might affect wages show much smaller gaps. For example, a late 1990s study by June O'Neill showed that the gap for all people aged 27-33 without children was 2% in 1994. And recent Bureau of Labor Statistics data show the gap was 8% for never-married workers in 1999.  So, the reality here is that a good hunk of the gender wage gap is explained by the differences in labor market characteristics of men and women, everything from human capital to whether or not they are married or have kids.  Bottom line:  two workers in their 20s or 30s identical in every way other than gender will make just about the same wages.  A gap still exists but it is under 10%, and perhaps much smaller.  My point is simply that markets are already doing a pretty good job of eliminating labor market discrimination in the sense of making sure that equally qualified people get paid the same for the same work.

Rod's critique of the neoclassical story of why competition will perfectly eliminate descrimination-based wage gaps is excellent.  An Austrian perspective would emphasize the prospective nature of the value of a worker's marginal product and gladly admit that employers can and do get it wrong.  I heartily recommend the work of W. H. Hutt for a really good Austrian view of labor markets.  Austrians would rely on the "rationality" of markets as processes, not the foresight of individual firms, to explain why there is a tendency for workers to get paid according to what they contribute to production.  And Rod's points about the comparative ability of markets and governments to set wages (both imperfectly, but markets less imperfectly) are right on as well.

Nonetheless, a wage gap remains.  Is that the result of discrimination?  Possibly.  As Rod rightly notes, sexism may be a consumption good to some managers and they are willing to sacrifice profits to be biased against women.  Even recognizing this point doesn't necessarily point to state intervention as the solution.  Why would we expect less sexism among male bureaucrats and politicians, and especially when, absent profit and loss, they lack both signals and incentives to alert them to such behavior and to encourage them to correct it?  It's one thing to say firm managers will see and ignore the unprofitability of sexism, but how likely is gender equality to be when such signals and incentives aren't even there to be seen or ignored?

The wage gap also remains because even if men and women are equally capable of most or all work, cultural norms and expectations affect men and women differently and this has implications for wages.  As Rod nicely puts it:

The fact that the wage gap does not get whittled away by competition in this fashion shows that the gap must be based, so the argument runs, on a real difference in productivity between the sexes. This does not necessarily point to any inherent difference in capacities, but might instead be due to the disproportionate burden of household work shouldered by women -- which would also explain why the wage gap is greater for married women than for single women. (Walter Block makes this argument also.) Hence feminist worries about the wage gap are groundless.

I'm not sure why this argument, if successful, would show that worrying about the wage gap is a mistake, rather than showing that efforts to redress the gap should pay less attention to influencing employers and more attention to influencing marital norms. (Perhaps the response would be that since wives freely choose to abide by such norms, outsiders have no basis for condemning the norms. But since when can't freely chosen arrangements be criticised -- on moral grounds, prudential grounds, or both?)

I could not agree with this more.  Let me phrase it somewhat differently though:  the gender wage gap that exists after human capital etc. is taken into account may reflect discrimination/sexism but that discrimination is not the fault of labor markets.  For example, if it is women who are expected to raise the children or do a disproportionate share of the household labor, this will make them less productive in the labor market, leading to lower wages.  (They will more likely want part-time work, or jobs with scheduling flexibility, both of which tend to pay less, ceteris paribus.  They will also be more likely to interrupt their consecutive years at a specific job or in the labor force generally, both of which, ceteris paribus, lower earnings.)  The problem here is that the sexism is occuring "before" people get to the labor market:  in the distribution of household production or in educational processes or more generally in cultural expectations of men and women.  Markets may reasonably accurately reflect productivity, but other sexist social processes produce differences in productivity that lead to wage differentials.  For me, it's perfectly possible to argue both that markets will reduce discrimination much better than the state or other systems and that sexism still causes women to get paid less than men, all else equal.  As a libertarian, one can, as Rod says, criticize the voluntary choices of individuals, especially when one thinks they lead to pernicious social consequences. 

And I also am in deep agreement with this point of Rod's:

That's one reason I'm more sympathetic to the labour movement and the feminist movement than many libertarians nowadays tend to be. In the 19th century, libertarians saw political oppression as one component in an interlocking system of political, economic, and cultural factors; they made neither the mistake of thinking that political power was the only problem nor the mistake of thinking that political power could be safely and effectively used to combat the other problems.

One of the things I talk about when I teach this material is that if women (and men!) want to continue to narrow that wage gap, they need to, as it were, get their own houses in order.  When the burden of household production is more equally shared between men and women, the gap between their wages will fall as well.  Obviously, neither Rod nor I am recommending state-sponsored re-education camps for lazy men, but there are all kinds of non-coercive ways to convince people to change their behaviors, and to call upon moral norms of fairness and equality in doing so. 

Will the gender wage gap ever be eliminated totally?  Maybe not, but as libertarians, we can do more than just say "well, markets eliminate any 'real' discrmination" and be done with it.  It's about both liberty AND power (duh!).  We can be part of social movements that work for equality in the home and workplace (power) as well as under the law (liberty).