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I am commonly struck with a mixture of pride, relief and fear when I hand in my column each week. The fear comes from a realization that I need to write another column next week. This was not the case for long last week. After reading the comments posted to my column from last week, I realized that I wanted to dust off some of my text books from my Labor Economics classes I taught long ago. In them are some thoughts about why it is that women are often paid less than men, a common theme among the respondents to my column last week. Although these ideas do not give a definitive reason for the pay gap between genders, I think that listing some ideas as to why economists believe it exists would be interesting. This discussion is all the more relevant since this past week was the 100th anniversary of International Women’s Day.
I used a combination of a text book and books of readings to teach this class. The text book was a classic Labor Economics book by Ehrenberg and Smith, while the readings books were collections of papers combined in collections called “The Economics of Men, Women and Work” and “Race and Gender in the American Economy.” As you can tell from the titles of these books, issues of income equality were central to a Labor Economics class as I taught it. Recall that, even today, a woman in the U.S. earns about 80 cents for every dollar earned by a man.
In economics, we teach that the prices (and wages are just that; prices paid for labor) are determined by the interaction of supply and demand. In a labor market, workers offer, or supply labor, while firms hire, or demand that labor. Therefore, wages are determined by the interaction of forces that affect both supply and demand for labor. We can’t point to either supply or demand for one single reason why wages for women are lower than those for men. Instead, we must look at both sides of the market for an understanding of why wages are generally lower for women.
Some of the reasons that are commonly given for why women are paid less than men are outlined below. Please see a labor economics text book for a more detailed analysis of these. The first four discuss reasons rising from the supply of labor, while the last two focus on the demand for labor.
1. Differences in education. This may be a result of social pressure that encourages education for men and not for women. Or it may be that women realize that the return to educational investment is less for them, and they therefore do not take on such investment. This becomes a self-fulfilling prophesy, as they are therefore not paid as much because they do not have as much education as men.
2. Less attachment to the paid labor force. Women may be more likely to take time away from the paid labor force as they become parents, leading to erosion in the skills they can bring to a job. Because of this, they are therefore paid less for their time.
3. Women tend to self-select themselves into fields that are already heavily female, and which may not pay as well. For example, pay to elementary school teachers and nurses is traditionally less than pay in more male-dominated fields, such as engineering. However, even in the same occupations, it is common for women to be paid less than men.
4. Age. Younger women are more likely to expect equal wages. Because of this, as younger women have been entering the labor force, wages paid to men and women have become more equal.
5. Differences in opportunities. Firms might be reluctant to invest firm-specific training in workers whom they perceive (perhaps incorrectly)might be planning to leave the labor market in the near future, and therefore do not invest in their female workers to the same extent as they do for male workers.
6. Discrimination. It is possible that some of the differences in wages results from discrimination on the part of employers. I am sure that we all know of stories where the only explanation for behavior is simple discrimination. I recall one woman I know who left a job after several years at an organization only to be replaced by a man with similar qualifications who was immediately paid more than she was being paid at the time she left. Surely, such stories remind us that we have far to go on our journey towards achieving equality in the labor market.
I only hope that, by the time my daughter enters the labor market, wages earned by women have become closer to being equal to those earned by men.
