The Mises Institute monthly, free with membership
March 1999
Volume 17, Number 3
Twenty-four Cents
Shawn Ritenour
The Equal Pay Act of 1963 trampled on the rights of states to regulate their own labor markets,
by overturning local laws enacted to protect women from working long hours, working at night,
lifting heavy objects, and working during pregnancy. In addition, the 1963 law prohibited
employers and employees from voluntarily agreeing to separate pay scales for men and women.
President Clinton wants to do even more. His proposed expansion adds "full compensatory and
punitive" (read: envy-driven) damages. It punishes employers that seek to reduce employee strife
by keeping salaries private. It will also "recognize and promote" firms that "have made strides to
eliminate pay disparities." In other words, it will subsidize inefficiency and transfer wealth to
firms with more equal-paying jobs from firms with a greater range of wages.
Supporters of equal-pay regulations make much of the "76-cent statistic." The Department of
Labor's Women's Bureau, a product of the twilight of the Progressive Era, has issued a report
claiming that the average woman earns 76 cents for every dollar the average man makes. The
President's Council of Economic Advisors says the ratio is 75 cents for every dollar a man
earns.
It is the bread and butter of politicians to take such statistics, mix them with an ill-formulated
version of the law of "one price," and turn out a bitter brew of labor-market intervention. Goods
considered equal by their demanders will indeed be sold for the same price throughout the
market. But the sameness between the goods is not determined by the physical characteristics of
the good in question, but by the demander. Hence, it is possible that for some tasks, both men
and women are perceived as practically identical. In these markets, one would expect that the
earnings by men and women are virtually the same.
Indeed, when the data are broken down, this is what one finds. Don't compare the "average" man
and the "average" woman; compare men and women of similar ages, education, major fields of
study, occupation, and marital status. The so-called "earnings gap" shrinks dramatically. Even
the government admits that, statistically, only one-third of the 24-cent pay gap is "unexplained"
by the above mentioned factors.
In other words, only an 8-cent difference is unexplained. Of course, this 8-cent "unexplained"
pay difference is written off by the administration as sexual discrimination. It never occurs to
them (they do not want it to) that the remaining perceived 8-cent pay gap for similar-appearing
men and women is due to things that are immeasurable.
There are many cases in which women are actually earning more than men. Beating the state at
its own statistical game, for example, women aged 35 44, who graduated with a bachelor's
degree in communications and are employed in a marketing occupation, earn $1.30 for every
dollar a similar man makes.
If the "76-cent statistic" is evidence of workplace discrimination against women in general, why
is the "$1.30 statistic" not evidence of discrimination against men in the marketing industry? In
reality, what counts to employers is not averages at all, but how much will a particular applicant
contribute to my firm? There is no way for a government bureaucrat to know this in
advance.
What they should know, however, is that there are good reasons why the "average" woman earns
less than the "average" man, almost all of which are connected to the fact that a woman's
primary concern tends to be her family. The big difference between men and women is how they
react to marriage and child-birth. Marriage tends to increase men's participation in the labor
force and decrease women's. The hours men work tend to increase with the birth of a child.
Hours that women work tend to decrease when a child is born. Mothers tend to work less
overtime and take fewer jobs requiring them to work long hours in return for high pay than
fathers do.
Marriage and child rearing contribute to a number of choices that women make that place them
on a lower earning trajectory over time. Women have higher turnover rates and fewer continuous
years on a single job than men do. More women work part-time jobs than men do, so they can
devote time to the family. They also have a higher absence rate than men. Further, women tend
to
take those occupations where an absence of five to six years to raise a pre-schooler will not make
them obsolete.
A five-year layoff from teaching in the public-school system will not damage a woman's
earnings nearly as much as if she left the computer software industry for five years. Additionally,
women tend to drop out of the labor force more completely than men do after children enter the
picture. In fact, for those individuals not looking for work in 1996, almost five times as many
women than men said they were not pursuing employment due to family responsibilities.
Finally, wives tend to follow their husbands in pursuit of employment rather than the other way
around. Hence, while a husband usually chooses his best earning opportunity, wives tend to
choose their best earning option, given where the family moves. Recognizing the divergent paths
women and men expect their careers to take after childbirth, it should not surprise anyone that
women have fewer incentives to invest in education and training because they are expecting a
shorter career in the labor market than men are.
It also should not surprise anyone that employers take these possibilities into account when
deciding to hire someone. An employer rarely hires a person for only a day. The employer begins
a relationship with that worker, often putting substantial resources into training his new recruit.
He may be less likely to hire a woman to fill a crucial position that may require substantial
training expenditures, recognizing that the newly hired woman may quit whenever she has
children. This is even more true now that the government has saddled firms with mandated
family-leave regulations.
That family ties are the primary reason behind male/female pay differentials is born out by a
glance at demographic changes over the past hundred years. From the mid-1800s to the 1930s,
the fertility rates in the United States declined, but then increased through the mid-1950s. Up to
the 1930s, more and more women felt free to enter the labor force. Indeed, the 1902 Who's Who
in America had more than twice as many entries for women as did the 1958 edition. In both
1921
and 1932, 17 percent of all doctorates awarded were to women. Following the rise in the birth
rate, that percentage was down to 10 percent by the late 1950s. The percentage of professional
and technical occupations (jobs that tended to pay well) held by women decreased by 9 percent
from 1940 to 1950.
Then fertility rates began to decline again. From 1950 through 1990, the birth rate fell by 36.7
percent. Women began entering the labor force. The number of professional and technical
occupations held by females increased from 11 percent in the 1960s to 14 percent in the 1970s.
From 1975 to 1995 women's share of professional jobs increased 82 percent. The increase for
technical jobs was 79 percent.
All of this demonstrates that the performance of women's earnings over time is not the result of
systematic discrimination. Whether egalitarians like it or not, for the "average" woman family
life trumps other concerns on the margin. Employers and employees are merely recognizing this
fact of nature: women and men are not equal in the sense of being identical. They are different
and have different comparative advantages when it comes to work outside the home versus child
rearing.
Of course, both men and women would like to work for much more than what they are getting
paid, other things equal. But then, the other things are never equal. That fact serves as a useful
device for egalitarian politicians and bureaucrats. Social engineers use the persistence of
inequality of income as the warrant for never-ending regulation.
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Shawn Ritenour, who teaches economics at Southwest Baptist University, is an adjunct scholar
of the Mises Institute. FURTHER READING: "Statistics: Achilles' Heel of Government," by
Murray Rothbard, in Logic of
Action (Edward Elgar, 1997).
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