Do Women Earn Less than Men?

Release Date
August 30, 2011

Topic

Poverty & Inequality
Description

Another contemporary economic myth is that women make 75 cents for every dollar men make because they’re discriminated against in labor markets. Like other myths, this does have a kernel of truth to it. So for example, if you add up all the incomes of women and divide by the number of women in the labor force and then do the same thing for men, what you’ll find is, on average, women do make about 75% of what men do.
What’s happening here is not discrimination in the labor market, but differences in the choices that men and women make (about investing in their knowledge, their education, their skills, and their job experiences) that lead to them getting paid different salaries.

Do Women Earn Less Than Men?
Another contemporary economic myth is that women make 75 cents for every dollar men make because they’re discriminated against in labor markets. Like other myths this does have a kernel of truth to it. So for example, if you add up all the incomes of women and divide by the number of women in the labor force and then do the same thing for men, what you’ll find on average is that women do make about 75% of what men do.
What’s happening here is not discrimination in the labor market, but differences in the choices that men and women make about investing in their knowledge, their education, their skills, and their job experiences that lead to them getting paid different salaries.
Economists talk about people’s human capital. By human capital, we mean the knowledge, the skills, the education, and the job experience that people have. And the economics are that people get paid wages according to that human capital. It turns out that men and women invest very differently in their human capital and we can see that in four different ways.
First of all, educational choices; men for example tend to go into fields like engineering. Women tend to go into social sciences, into psychology, into nursing and so where men are making higher salaries as engineers or perhaps in the business world, women tend to end up in jobs in which their salaries are somewhat lower. So even though they may have the same years of schooling, the different choices they’ve made about their majors lead them working in different areas and getting paid differently.
Secondly men and women have different expectations about work. For example if women expect down the road to take time off to raise children, they’ll make different choices today about what kinds of skills they acquire than if they imagine they’ll be working full time for the rest of their lives. And we know historically that many women in the 1960’s and 70’s didn’t imagine that they would be working full time at age 40 and ended up making choices that led them to have jobs when they were working at age 40 that didn’t pay as well as it might have otherwise. Younger women today of course are more likely to imagine themselves working at age 40 and therefore make different investments today.
Another difference between men and women is full versus part time work. Women are much more likely than men to work part time. Men are more likely to work full time. And part time work even for the same kinds of jobs tends to pay less than full time work. And women tend to prefer to work part time more than men because women tend to take on more of the responsibility for children and the home.
Finally men and women differ in their tenure on the job and the way in which their careers get interrupted. If it’s the case that women take time off the workforce to raise children that will have an impact on their salaries down the road.
So we put these four things together what we get is the difference between men and women’s pay is not a result of labor market discrimination but of the choices that men and women make before they enter the labor market or even when they’re in the labor market about the kinds of jobs they want to have and they way they want to balance a family and work. Studies have tried to control for all these factors have shown that if you take a man and a woman, same experience, same education, same job, and compare their salaries, what you find is that women make about 98% of what men do so that gender wage gap pretty much disappears. And in some jobs women actually make more.
Now it might well be the case that women are being discriminated against or that sexism is a problem in the choices that women make. For example, girls have gotten away from math classes and gotten into other kinds of classes. It’s also certainly the case that our expectations about women’s roles versus caring for children in the household, men’s roles for caring for children in the household are very different. If you think those are poor choices if we want to see women’s pay more equal to men what we need to do is convince more women to go into more areas such as the sciences and mathematics and engineering and we need to convince men to take more responsibility for children and the house. When those begin to even out we’ll see wages begin to even out as well. But in the mean time whatever choices men and women make the wages they’re paid in the market will reflect the productivity associated with those choices and are not the result of discrimination.