Equal Pay Day Commemorates a Mythical Gender Pay Gap

Equal Pay Day Commemorates a Mythical Gender Pay Gap
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Equal Pay Day falls on April 4 this year, and purportedly represents how far into 2017 women must continue working to earn what their male counterparts earned last year. The National Center for Pay Equity promotes Equal Pay Day annually to bring attention to the so-called “gender pay gap,” which claims that women receive 20% lower pay on average for doing the same work as men. But the 20% gender wage gap is actually a tiresome statistical myth that persists in the face of overwhelming evidence to the contrary. The reality is that men and women make very different career and work choices, and frequently play very different family roles, especially for families with children. Those choices reasonably account for most of gender differences in earnings and don’t point toward widespread gender pay discrimination in the workplace.

Labor economists have conducted numerous studies over many decades to explain differences in earnings among workers. Economists believe that two main factors influence the earnings received by a given worker.

The most important factor is the skills and productivity that an employee brings to the job, including both formal education and skills learned on the job through work experience. Data show that male employees tend to have more years of work experience than females, and also work more hours per week on average than women. Men also tend to gravitate toward college majors with greater market value than women. For instance, roughly 80% of engineering and computer science majors are male while two-thirds of liberal arts, drama, dance, education and fine arts majors are female. Those personal choices in college majors translate into wide variations in earnings after graduation, since market forces in the labor market determine salaries for different educational specialties.

But there’s a second component of earnings, which labor economists call “compensating wage differentials,” which also explains gender variation in salaries. Compensating wage differentials are differences in pay that are designed to attract employees to jobs that otherwise would be undesirable. As Adam Smith said in The Wealth of Nations, “The wages of labor vary with the ease and hardship … of the occupation.”

The undesirable aspects of certain jobs can range from the mundane to the gruesome. For instance, men have longer average commute times to their jobs than women. In the U.S., the average male spends 4,500 more minutes commuting to work each year. How much extra pay would you demand to spend the equivalent of nine additional eight-hour days sitting in traffic or on a bus riding to work?

At the other end of the spectrum is the probability that you’ll be injured or killed on the job. Economists have long found that, all else equal, more dangerous jobs pay higher average wages than safer jobs. And the 20 jobs with the highest occupational fatality rates tracked by the Bureau of Labor Statistics are on average 93% male. Relatively safe occupations such as office and administrative support and education, training, and library occupations are roughly three-quarters female. If you think it’s reasonable for dangerous jobs to pay higher salaries, then you should also conclude that men on average should earn more than women.

In between those factors, we have other issues, like the financial risk of a job. Ordinarily, people prefer a steady dependable income to an income that varies from week-to-week or year-to-year. To compensate for a risky, variable income, employees will generally receive higher average pay. Economic research finds that about 20% of pay in financial occupations is compensation for the high level of earnings risk in those jobs. Occupations such as education, which are predominantly female, have much less risk, both in terms of annual earnings fluctuations and the risk of unemployment.

But there are positive factors as well. For instance, employees might willingly accept a lower salary if their job is rewarding or focuses on issues the employees believe in, be it helping children, protecting the environment, or fighting cancer. This is the realm of non-profits, and 7-in-10 employees of non-profit organizations are female.

Proponents of the gender pay gap myth would have you believe that any difference in earnings between men and women is the result of gender pay discrimination. The reality is that men and women are different – they gravitate to different college majors, they have different levels of work experiences, they play different family roles, and they often work in very different types of jobs. It would be inexplicable to imagine that despite those many differences men and women would earn precisely the same amounts. It would also be completely unrealistic to suggest that the 20% difference in annual earnings is exclusively or even largely the result of gender discrimination. But to celebrate Equal Pay Day, those are some of the statistical fairy tales that you have to accept.

Andrew G. Biggs and Mark J. Perry are scholars at the American Enterprise institute, and Perry is also a professor of economics at the University of Michigan's Flint campus.  

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