Wednesday, July 31, 2013

The Myth of Female Wage Discrimination

An article posted on uses data from The National Women’s Law Center’s website that purportedly shows the gender “wage gap” of each U.S. State. The state identified as having the largest wage gap is Wyoming, with women being paid $0.67 for every $1 paid to a man. The smallest gap is in Washington D.C., with women being paid $0.90 for every $1. Fortunately for women this study is completely bogus.

The wage gap measured by The National Women’s Law Center is calculated as “the ratio of female and male annual median earnings for full time, year round workers”. Simply put, they are dividing the female median earnings by the male median earnings in each state and claiming that the resulting number (something less than one) means that women are being discriminated against. The problem is that this is an apples to oranges comparison. If I took the median earnings for maids/house cleaners (primarily women) and divided it by the median earnings for policemen (primarily men) I would certainly get a number less than one. But would anyone claim that this is a discrimination problem against maids and in favor of policemen? Of course not. The jobs are completely different, with varying risk structures, training requirements, and demand. But this is exactly what The National Women’s Law Center is doing and then portraying it as discrimination. Claiming a discriminatory gender wage gap based on aggregate data that does not at the very least control for occupation, experience, and schooling is dishonest and dangerous.

Neither economic theory nor data support the claim of systematic, widespread gender wage discrimination. Unfortunately faulty policy, like the Lilly Ledbetter Fair Pay Act, is largely based on erroneous aggregate studies such as this one.  In fact, anti-wage discrimination laws such often work against the women they are trying to help since they make it more expensive to hire them on the margin. If an employer is indifferent between hiring a man and a woman for a job but knows that there is a chance that the woman might one day sue for pay discrimination that would be costly for the employer to disprove it makes sense to hire the man.

Wage discrimination is a myth based on poor studies. Organizations like The National Women’s Law Center are doing women a disservice by constantly resurrecting this straw man. In reality anti-wage discrimination laws only add to the costs of doing business for employers, which is hardly something this country needs in a time of high unemployment. 

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