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Equal Pay Legislation and the Gender Wage Gap A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Polachek, Solomon W. Article Equal pay legislation and the gender wage gap IZA World of Labor Provided in Cooperation with: IZA – Institute of Labor Economics Suggested Citation: Polachek, Solomon W. (2019) : Equal pay legislation and the gender wage gap, IZA World of Labor, ISSN 2054-9571, Institute of Labor Economics (IZA), Bonn, Iss. 16v2, http://dx.doi.org/10.15185/izawol.16.v2 This Version is available at: http://hdl.handle.net/10419/206575 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu SOLOMON W. POLACHEK State University of New York at Binghamton, USA, Liverpool Hope University, UK, and IZA, Germany Equal pay legislation and the gender wage gap Despite major efforts at equal pay legislation, gender pay inequality still exists—how can this be put right? Keywords: gender, wage inequality, human capital ELEVATOR PITCH Gender pay gap and childcare enrollment, 2017 Despite equal pay legislation dating back 50 years, 40 American women still earn 18% less than their male LT 30 EE CZ CL counterparts. In the UK, with its Equal Pay Act of 1970, LV HU and France, which legislated in 1972, the gap is 17% and 20 PT SK US AU NO 10% respectively, and in Australia it remains around PL IE IS AT Fl ES FR 14%. Interestingly, the gender pay gap is relatively small 10 IT UK Sl LU DK for the young but increases as men and women grow BE older. Similarly, it is large when comparing married 0 GR CH NL men and women, but smaller for singles. Just what can Gender pay gap at age 35–39 (%) explain these wage patterns? And what can governments –10 0 20 40 60 do to speed up wage convergence to close the gender Enrollment rates of children aged 0–2 in formal care (%) pay gap? Clearly, the gender pay gap continues to be an Source: Author’s compilation calculated from OECD data. Online at: important policy issue. https://data.oecd.org/ KEY FINDINGS Pros Cons Policies promoting greater daycare utilization Audit studies designed to “catch” employers in the reduce the gender wage gap. act find little evidence of gender discrimination. Policies aimed at increasing women’s lifetime work Impact studies of the effects of anti-discrimination can reduce the gender wage gap. policies find little effect on reducing the gender The gender wage gap is smallest between single wage gap. men and single women. The gender wage gap is largest (typically around The gender wage gap is decreasing in most 25%) between married (or cohabitating) men and countries. women with children. Equal pay legislation has not been effective in eliminating the gender pay gap. AUTHOR’S MAIN MESSAGE Equal pay policies based on wage outcomes have had little effect on the gender wage gap, while policies reducing women’s labor force participation, such as marriage taxes, even increase the gender wage gap. Strong evidence supports the idea that accumulated human capital narrows the gender wage gap. In addition, the gender gap is already decreasing in most countries because changing demographics have led to women’s increased lifetime labor force participation. Nevertheless, effective policies, especially those that promote even greater lifetime work for women, can successfully reduce the gender wage gap further. Equal pay legislation and the gender wage gap. IZA World of Labor 2019: 16v2 11 doi: 10.15185/izawol.16.v2 | Solomon W. Polachek © | October 2019 [Previous version May 2014] | wol.iza.org SOLOMON W. POLACHEK | Equal pay legislation and the gender wage gap MOTIVATION Some employees earn more than others. As such, pay variation between workers is the norm rather than the exception. While valid economic arguments can explain some of this variation, accounting for why certain demographic groups consistently earn less than the norm is problematic. This is particularly true for women. If the pattern of lower female wages arises because of discrimination, then the economy is inadequately remunerating a large group of valuable employees. On the other hand, if unequal economic outcomes result from differing individual choices (despite equal opportunity), then government intervention could lead to a distorted allocation of resources. Such misallocations could result in inefficiencies within the economy so that the whole economy suffers; and in the long term, women are not helped. Thus, understanding the source of earnings differences is important. DISCUSSION OF PROS AND CONS The various evidence on gender pay gaps The first known gender gap estimate is biblical. Leviticus Chapter 27 pegs the monetary difference between prime-age male and female Israelite slaves at 40%. In the US, from 1960 to 1980, women earned 59 cents compared with every dollar earned by men, implying a comparable 41% wage gap. Over time, this wage gap has been more or less declining. It was approximately 70% in 1815, around 40% from about 1950 to 1980, and currently it is about 18%. Interestingly, the gender wage gap is not the same for all segments of the population. Even within a country, demographic factors influence this gap. Take the US: Figure 1 indicates the female-to-male earnings ratio by age. For 16 to 24-year-olds, the earnings gap is 5.1%; yet, for 55 to 64-year-olds, it rises to a whopping 26.3%. In short, the gender pay gap is relatively small for the young, but systematically increases as men and women age, and it is five times larger for older men and women than younger men and women. Differential pay patterns also emerge when marital and cohabitation status are observed. Single, non-partnered men earn about 11% more than single non-partnered women. However, between currently partnered men and women with children the wage gap is around 47%, over four times as great. Figure 1. US earnings ratios according to age in 2016 Age Female median usual weekly earnings compared to males who are full-time wage and salary workers 16−24 94.9 25−34 88.8 35−44 83.3 45−54 77.8 55−64 73.7 65+ 75.5 Source: US Bureau of Labor Statistics. “Women’s and men’s earnings by age in 2016.” Online at:https://www. bls.gov/opub/ted/2017/womens-and-mens-earnings-by-age-in-2016.htm IZA World of Labor | October 2019 | wol.iza.org 2 SOLOMON W. POLACHEK | Equal pay legislation and the gender wage gap Children also exacerbate the gap. Each extra child increases earnings differences by between 2% and 10%. Furthermore, children’s detrimental effect on women’s wages relative to men’s is bigger when children are spaced widely apart [1]. The effects of age, partnering arrangements, and children hold up not just in the US, but across most countries for which there are data. Figure 2 presents measures for selected countries. Again, the percentage wage gap for cohabitating men and women is also typically about four times the gap for single childless workers. In addition, as in the US, the earnings gap is far wider among couples with children. Discrimination is not the explanation Discrimination does not explain these wage patterns. The Oxford English Dictionary defines discrimination as “the unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, or sex.” Paying women less than men obviously seems to fit this definition. But, according to Figure 1 and Figure 2, the story is more complicated. Not all groups of women are paid significantly less. The gender wage gap for single non-cohabitating men and women is relatively small compared with the almost 50% for cohabitating men and women with children. The gender wage gap for young workers is about 5%, but over 25% for 55 to 64-year-old men and women. If gender discrimination were the issue, the reason why businesses pay single men and single women relatively comparable salaries would need to be explained. The same applies to young men and young women. Why businesses discriminate against older women but not against younger women would need to be explained. If corporations discriminate by gender, why are these employers paying any groups of men and women roughly equal pay? Why is there no discrimination against young single women, but large amounts of discrimination against older married women, especially those with children? Clearly, gender alone cannot be the explanation; otherwise a large wage gap between single as well as young men and women would be observed, but this is not what the data show. A theory of differential discrimination (why discrimination varies by age, by marital/ cohabitation status, and by number of children) would be required. Also, a theory would be needed for why these patterns are universal given that they pervade similarly in virtually all countries for which there are data.
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