The Fallacies of the “Gender Pay Gap”

Statistics and slogans vocally declare that women still have a long way to go before gaining equal pay with their male counterparts. Such statistics, however, largely lack fundamental context, analysis, and understanding.

The figures, generally demonstrating disparities in median income, generalize from the entire population and eliminate many of the underlying causal variables that are essential for proper comprehension of the issue. Thus, they leave only one variable remaining on the table – discrimination.

Although, a proper understanding of free market economics enables one to perceive that the true gaps between men and women are those of differing societal and familial roles, priorities, and interests.

These variables are curiously absent from the statistics and slogans that commonly address the issue. But, when one considers the whole picture, it is clear that an unfettered market does not discriminate based on gender and, instead, assigns wage rates based on the objective laws of economics.

Some of the most prominently cited wage figures come from the Bureau of Labor and Statistics. The results of their 2009 earnings ratio study demonstrated that, overall, women’s median incomes were 80 percent of that of their male counterparts (BLS, 2010). Emotion alone would push any woman to the point of offense, but one must rationally consider the rest of the information. The Bureau later admits that, in younger cohorts, the gap is much less significant. In fact, women between the ages of 25 and 34 earn 89 percent of male income and those between 16 and 24 earn 93 percent (BLS, 2010). One immediately notices a trend. As women get older, their pay tends to drop in proportion to that of males. Social norms offer some plausible explanations.

As Thomas E. Woods (2001) explains, women often seek employment with the eventual plan of interrupting their careers to care for children. Furthermore, they are more likely to seek careers that are less demanding, allow for smoother reentry, more flexible for taking time off, and even those that are closer to their homes in potentially less urban areas (Woods, 2001).

These specifications, on a statistically broad basis, narrow the careers that are appealing to many women. Thus, with more women interested in careers meeting these criteria, there is a heavy supply where there is not necessarily a correlating demand. This simple law of supply and demand helps to explain some of the disparity – particularly among older cohorts that more likely include mothers. Similarly, those women who resist societal patterns and enter higher-demand markets can statistically expect to earn more and seal the gap (Woods 2009).

As time progresses, it is possible that more women will resist the social phenomena behind the current data and, thus, the numbers will change to accommodate their novel behavior. Recent decades, in which women have exponentially increased their reaches in the global market, statistically demonstrate major steps toward the natural equality of gender pay. Therefore, women’s preferences and actions bear more effect on the statistics than do those of the employers who are often suspected of discrimination.

In a free market economy, employer incentives are actually to pursue just the opposite of discrimination. As explained by John Hood (1998), discrimination robs employers of a large pool of human capital. It would be completely irrational to select employees based on any factor other than profit-potential. After all, the dollar sign has no age, gender, or race.

Regardless of this important argument, the government has often tried to intervene to forcefully equalize the rate differences between the genders. This intervention throws off the normal market process and often acts to change employer incentives. In fact, according to Ludwig Von Mises (1964), coercively raising wages above the market rate can only serve to create lasting unemployment. This is due to the fact that mandating the raise of any wage immediately decreases the resources available to hire more employees.

Furthermore, if an employer pays according to the effort employees invest, and female employees generally work fewer hours than their male co-workers, the employer will likely pay those women less than male employees who work a lot of over time. If the employer is required by law, however, to pay them the same rate, that employer is much less likely to hire women at all.

In fact, a case study in Minnesota demonstrates that, after implementing an equal-pay law, women’s unemployment rose five percent. After the effects of the law were discernible, many Minnesota women wanted to overturn the law because they feared unemployment (Woods, 2001). Thus, appealing as equality-driven government interventions may at first appear, they only serve to make the existing gap much, much worse.

All of this in mind, one can easily perceive that there is more to the gender wage gap issue than the unexamined statistic or the emotionally-driven slogan. It is crucial to recall that the laws of economics do not favor gender, and the incentives do not exist that would support employer discrimination. The only variables left, then, are those of normal, unregulated human behavior. The fallacy of hobgoblin, discriminatory employers merely does not correlate with reality.

About The Author:

The following was written by Leah Stiles, a student of government and history at Regent University. She has completed a Koch leadership program and an internship with the Foundation for Economic Education.

References

Hood, John. (1998, August) Capitalism: Discrimination’s implacable enemy. The Freeman: Ideas on Liberty. Retrieved from http://www.thefreemanonline.org/featured/capitalism-discriminations-implacable-enemy/

Mises, Ludwig Von. (1964, April). Wage Interference by Government. Christian Economics. Reprinted in Economic Freedom and Interventionism: An anthology of articles and essays, 65-68.

U.S. Bureau of Labor Statistics. (July, 2010). TED: The Editor’s Desk. Women’s-to-men’s earnings ratio by age, 2009. Retrieved from http://www.bls.gov/opub/ted/2010/ted_20100708.htm

Woods, Thomas E. Jr. (November, 2001). The “Pay Equity” Racket. The Free Market, vol. 19, 11. Retrieved from http://mises.org/freemarket_detail.aspx?control=380

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