Tuesday, April 12, 2016

Pay Discrimination Myth

Alice Baxter: Um, Miss McGill?
Tess McGill: Yes.
Alice Baxter: That's your desk...in there.
Tess McGill: I don't think so.
Alice Baxter: Oh, yes.
Tess McGill: Sorry, but I thought the secretary would sit out here.
Alice Baxter: That's right. I'm the secretary. If you don't mind, I'd prefer assistant.
--Working Girl

Today is Equal Pay Day--at least according to some special interest groups seeking to highlight differences in wages earned by men and women. On average, women have been found to earn about 75% of what men earn.

Special interests claim that the 25% difference proves discrimination. It proves nothing of the sort, of course, as these pages have noted several times (e.g., here, here, here, here).

An intellectually honest effort would first need to consider other factors that could be causing pay differences. Prof Steve Horwitz discusses some of them here:

Educational choices
Career path expectations
Full versus part-time work
Tenure on the job/work experience

What these factors amount to are decisions that influence the development of human capital. And studies indicate that men and women have generally differed in their choices in this regard. These difference influence productivity--the amount of output produced per hour of work.

Axiomatically, in the market for labor, wages are directly related to productivity.

The straightforward way to evaluate the effects of these choices on pay is to develop a multivariate regression model using the above factors as independent variables and wages as the dependent variable. As Prof Horwitz summarizes, empirical study after empirical study using this approach shows that, once wages are controlled by these factors, gender-related pay differences virtually disappear.

Another way to think about it: If women are indeed underpaid versus their productive capacity, then why wouldn't profit-seeking employers hire them at higher wages and compete away the discriminatory effects? The answer, of course, is that's precisely what labor markets will do unless forced to do otherwise (and even then black markets will form to normalize wages toward productive capacity).

Stated differently, unhampered markets temper prejudice of any kind in the name of self interest.

All of this falls on deaf ears to progressives, of course, as the discrimination narrative plays well with the 'war on women' crowd and motivates political energy among the ignorant.

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