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Women’s wage gap statistic misleading

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At some point in his State of the Union Address on January 28, President Obama complained about the low earnings of women relative to men: “you know, today, women make up about half of our workforce, but they still make 77 cents for every dollar a man earns. That is wrong, and, in 2014, it is an embarrassment. Women deserve equal pay for equal work.”

It was neither the first, nor the last time Obama has used the 77-cents statistic in his campaign-mode speeches.

On April 7 the president made an announcement proclaiming April 8 as National Equal Pay Day. The 77-cents-on-the-dollar grumble was trumpeted again as an illustration of inequality in the American labor market – anything to avert the attention of voters from the sluggish economy and the unpopularity of Obamacare.

Readers of this newspaper deserve a serious explanation of the gender income gap.

First a technical note: The cents-on-the-dollar statistic is calculated both by the Bureau of Labor Statistics and the Census Bureau. In 2012, the Census Bureau, which follows annual wages, found that women earned 77 cents for every dollar a man made. In contrast, the BLS compares the median usual weekly earnings of women to those of men. To that end, the BLS only uses a sample of full-time wage and salary workers. Using the BLS data I calculated the medians ratio for 2013 at 82 percent – in other words 82 cents on the dollar, or $706/$860.

Obama’s statement, that “women make only 77 cents for every dollar a man earns,” is, to say it politely, misleading. The gender-gap ratio is meaningless if taken out of its historical context.

Economists June O’Neill and Solomon Polachek provided the relevant historical data in the January 1993 edition of the Journal of Labor Economics. They have shown that, the Equal Pay Act of 1963 notwithstanding, throughout most of the post-World War II period the ratio of women’s to men’s earnings hovered around 60 percent – in 1960 and 1980 it was, respectively, 61 percent and 60 percent.

In the early 1980′s the ratio started to rise rapidly – growing at an average 1.7 percent annually and reaching a relatively high level of 72 percent by 1990.

The narrowing of the income gender gap was foreshadowed by women joining the labor force in increasingly larger numbers.

The women’s labor-force participation rate grew from 43 percent in 1970 to 52 percent in 1980.

Consistent with this trend, women’s years of experience in the work place increased rapidly, and, with more schooling, returns to work experience started to grow even more rapidly.

From 1990 to 2013 the ratio of median earnings of women to men was growing at a tapered average annual rate of 0.6 percent – from 72 percent to 82 percent.

At this point the relevant query is this: How much of Obama’s gap is due to discrimination?

Economists have been applying sophisticated statistical methods to determine the underlying causes of the gender pay gap. Stephanie R. Thomas, (in a study published in the Bloomberg Law Reports, 2010, concludes that “when legitimate factors such as work experience, occupation, etc. are accounted for, the raw gap of 23 cents shrinks to only 9 cents.” (The Bureau of Labor Statistics raw gap of 18 cents, by extrapolation shrinks to only 7 cents.)

Some of the remaining gender gap is explained by the fact that traditionally women were inclined to choose less quantitative fields of study such as sciences, engineering and business, and more “softer” fields in the humanities. I believe that this trend will completely fade away in a decade or two, and consequently the raw gap will shrink to 5 percent or less.

In the wake of the declining popularity of Obamacare, the president tried to push in the Senate the Paycheck Fairness Act. Republican senators who managed to defeat this bill were justified for two reasons:

First, this bill, if passed, on its face, would be a replica of the Equal Pay Act of 1963.

Second, if passed, this act would deviously remove the presumption of innocence for companies charged with wage discrimination.

Indeed, if most injury lawyers were women, this act could eliminate most of the gender gap.

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