The Gender Pay Gap Is Misleading

by Luis Pablo de la Horra

The gender gap is usually defined as the systematic differences in labor-market outcomes between men and women. These differences can arise in several employment-related metrics such as the labor force participation rate or the types of occupations women and men hold.

However, the measure that attracts the most attention in this respect is the gender wage gap, which can be defined as the median (average) difference in weekly (hourly) earnings between men and women. In the US, the gender wage gap for full-time workers is between 18 and 21%, (depending on how it is measured), meaning that men earn, on average, around 20% more than women.

People tend to attribute this wage differential to gender discrimination in the labor market: women earn less for doing the same job. However, this explanation is misleading. The gender wage gap measures differences in the aggregate, that is, it doesn’t provide any information about wages of equivalent female and male workers.

In order to know whether, all else equal, women earn less than men, we must take into account a number of elements influencing women’s and men’s wages. When we factor them in, the gap decreases considerably, casting doubt about labor market discrimination being the main cause of wage differentials. Here are three factors that help explain the gender wage gap.

1. Occupation and Industry

Differences in occupation and industry account for half of the gender wage gap. Women choose careers in administrative, service, and professional jobs where wages tend to be lower compared to high-productivity fields.

These differences can be attributed to factors such as women seeking careers or taking positions that are more “family-friendly” (i.e., that allow reconciling work and family life) or gender stereotypes (defined as attitudes and behaviors that society expects from women) assimilated during childhood that lead women to choose traditionally female occupations.

2. Education and Experience

Education has traditionally been an important factor contributing to the gender wage gap.  Until 1980, women were less likely to have college education than men, with the subsequent negative impact on their income. However, this is no longer the case. Today, women earn more Bachelor’s and Master’s degrees than men, which has reversed the education gap.

In contrast, labor market experience is still a significant factor explaining the gender wage gap. To be more specific, it accounts for around 16% of the unadjusted gap. Women tend to interrupt their working lives more often than men, normally to take care of their children.

3. Children

Children tend to have a depressing impact on women’s wages. This effect works through channels: the pre-child effect (anticipating motherhood, women may choose family-friendly careers) and the post-child effect (women may change their jobs as a result of motherhood).

A recent paper published at the American Economic Journal: Applied Economics examines the post-child effect in Denmark.  Unlike traditional wage-gap studies, the authors don’t control for other variables such as education or occupation. Instead, they use a quasi-experimental approach to estimate the impact of having a child on women’s wages.

Results show that, right after having their first child, women’s earnings fall by around 30 percent. In contrast, men’s earnings remain unchanged. After ten years, women’s earnings are still 20 percent below pre-birth levels.

This pattern is also detected in other countries. American women see their wages decrease by around 25 percent after having a child, whereas men’s wages hardly vary. In the long run, the difference between pre- and post-birth earnings for women is around 40 percent.

Two corollaries can be drawn from the above analysis. First, when controlling for education, experience, occupation, industry as well as other minor factors, the wage gap is reduced to around 8 percent. This gap has traditionally been attributed to labor market discrimination, but there are other unobservable factors that could explain it (e.g. psychological attributes, preferences or personality).

Second, children have a disproportionate negative impact on women’s careers compared to men’s. The unequal effects of children on women’s earnings seem to stem from the still-powerful influence of gender stereotypes, which emphasize the role of women as child bearers in detriment of the equal-sharing-of-responsibility approach to child rearing.

In sum, and contrary to conventional wisdom, we don’t need to resort to labor market discrimination to explain the gender wage gap.

Luis Pablo de la Horra is a Ph.D. Candidate in Economics at the University of Valladolid in Spain. His work has been published in several media outlets, including The American Conservative, CapX and Intellectual Takeout.