It’s a fact many of us are familiar with: Women make 77 cents for every dollar a man makes.  If you take all full-time workers and divide the median annual earnings of women by the median annual earnings of men, it does equal .77.

Our legislators have taken this statistic and run with it.  The state of Massachusetts recently passed the Massachusetts Pay Equity Act.  They think this is going to solve the problem of women making less money than men.  Once again, government officials are sticking their noses where they don’t belong and thinking they can legislate perfection into existence.

What are the real factors that contribute to the gender pay gap?

What are the real factors that contribute to the gender pay gap?

Business owners know that the value of an employee has nothing to do with gender.  In my 35 years of running a business, not once have I ever thought I could pay an employee less, or more for that matter, based on anything but the skill and productivity the employee brings to the company.

Before our brilliant legislators try to fix this issue with new regulations, they should take a closer look into the different reasons for the gender pay gap.

Claudia Goldin, a professor of economics at Harvard University, discussed this subject on a recent Freakonomics podcast.

 

 

There are 4 main factors people blame the gender pay gap on:

  • Discrimination against women
  • Women are not as competitive as men
  • Women go into careers that pay less than men
  • Women make less because they have more family responsibilities

Let’s look at each of these factors in turn, from the viewpoint of an economist who has been studying this topic for years.

Discrimination

This is the big one.  Many people wonder how women can possibly be making less than men in America in the year 2016.  To get a true comparison of wages, we have to hold as many factors as possible constant between the two genders.  There are studies that have done this pretty successfully and they found the actual difference in wages is very small.  Claudia Goldin further explains the small difference:

“We’re not quite certain whether these differences are due to the fact that women, even those without kids, have more responsibilities or take more responsibilities in their own families — taking care of their parents, for example.”  Whatever creates the minor percentage difference, Goldin says, “We don’t have tons of evidence that it’s true discrimination.

Are women less competitive than men?

When you look at men and women who just graduated from similar colleges and get similar jobs, they start out making the same amount of money, according to Goldin’s research.  You would think that if men were more competitive and better bargainers, they would have started out with better salaries than women from the get-go, but that’s not the case.  However, when you look at these same two people 10-15 years down the road, there are big differences in pay, what their job titles are, and where each gender is in their lives.  So what happened?  Much of the split in career paths comes in the couple years after a kid is born.  Women make different career choices to allow room for children in their lives.  So simply having a “competitive nature” is not as big of a factor as some might think it is.

Occupational Segregation

Men and women gravitate towards different subjects in school and different careers in life.  It seems plausible that women may choose career paths that pay less than the careers men choose.  Goldin explains that this does happen, but it is only partially part of the divergence.  She notes that if women worked the exact same jobs as men, you would still only wipe out a quarter of the difference in earnings between men and women.

The Mommy Tax

Anne-Marie Slaughter, a public policy scholar who was also featured on Freakonomics, explains the “Mommy Tax” best:

“If you take women who don’t have caregiving obligations, they’re almost equal with men.  It’s somewhere in the 95 percent range.  But when women then have children, or are caring for their own parents or other sick family members who need care, then they need to work differently.  They need to work flexibly, and often go part-time.  They often get less-good assignments because their bosses think that they’re not going to want work that allows them to travel, or they’re not going to be able to stay up all night, or whatever it is…  If you’re working part-time, you don’t get the same raises.  And if you’re working flexibly your boss very typically thinks that you’re not that committed to your career, so you don’t get promoted.”

The Value of a Flexible Work Schedule

When you break it down, there are multiple factors contributing to creating the gap in wages.  However, there is one factor that economists have discovered outweigh all of the others:  Women put a high price on having a flexible work schedule.  Women are more likely to make career choices that value family time over high salaries.  Many high-salary positions demand that the employee or consultant be on-call at 2am or work specific hours that don’t fit easily into the schedule of a mother.  Goldin says, “That doesn’t mean that she’s working fewer hours than she would’ve worked otherwise, but she can work her hours, and she gets paid somewhat less.”

Final Thoughts

As it always is with these subjects, the gender pay gap is more complicated than it seems on the surface.  We humans will all freely choose what career path we want, whether or not we want to have children, and what values we hold dearer than others.  Legislation will not change this.  For my part, all I can do is assist in making my company a great place to work and value my employee’s contributions.  I believe we should be paid according to the free market value we provide to the customers that utilize our services and products.  The free market dictates to us what that value is.  It’s not always perfect, but most of the time it works pretty efficiently.

Here is the link to the article about the Massachusetts Pay Equity Act:

https://www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/massachusetts-pay-equity-law.aspx

You can listen to the Freakonomics podcast in full here:

http://freakonomics.com/podcast/the-true-story-of-the-gender-pay-gap-a-new-freakonomics-radio-podcast/