True reasons behind gender pay gap

Photo / Thinkstock

Never mind the time of the month, why are women really paid less than men? Economist Ananish Chaudhuri offers insight.

The existence of a gender wage gap in the workplace is well documented. Women earn less than men in similar jobs even after allowing for other factors such as education and experience.

In the United States, annual earnings data released by the Census Bureau last September shows women working full-time make, on average, 77c for every dollar earned by men.

The UK Office of National Statistics reported in April that the average hourly wage rate for men working full time was £13.01 ($25.61) while for full time working women the rate was £11.68. This difference amounts to women earning about £10.60 less in an 8-hour working day.

What explains lower earning for women? A number of people put forward arguments similar to those expressed by the Employers and Manufacturers Association (Northern) chief Alasdair Thompson (who put the gap down to women's monthly "sick problems"), albeit with more tact; women often take time off work to start a family or take care of children.

The disparity can be put down to differences in observable characteristics such as education, hours worked, work experience and choice of occupation, or through unobserved factors such as discrimination against women.

Two leading labour economists from Cornell University, Francine Blau and Lawrence Kahn, carried out a comprehensive study that takes into account variables such as education, labour market experience, race and choice of occupation, and report that while the gender wage gap does diminish when all those factors are taken into account, about 12 per cent remains unexplained.

Robert Wood, Mary Corcoran and Paul Courant look at graduates of the University of Michigan Law School. They match the men and women in their sample for many of the possible explanatory factors, such as occupation, age, experience, education, time in the workforce, time spent in childcare, average hours worked, grades while in college, and so on. Even after accounting for all of that, the authors find women lawyers make about a quarter to a third less than the men.

Recent research throws up another suggestion: women simply do not ask for more. In the 2003 book Women Don't Ask, Linda Babcock and Sara Laschever point out that among MBAs from Carnegie Mellon University, starting salaries for men were almost US$4000 higher than for women, to a large extent because while only 7 per cent of women negotiated their starting salary, 57 per cent of the men did so. While this may not be a large difference to start with, given that future increments are based on current salary, a small difference early on translates into large differences later in life.

Many researchers, including myself, document a tendency among women to shy away from competitive environments. They often prefer to wait to be offered a raise rather than negotiate one because they find the process fraught with confrontation.

In the late 1990s, Lilly Ledbetter's lawsuit against the Goodyear Tyre and Rubber Company in the US became an important milestone in the fight for gender pay equity. When she retired after 20 years of service she found her salary was lower than the salary of the lowest-paid male workers. Why didn't she ask for more? Ledbetter's response was that she simply had no idea she was being paid so much less for the same work.

The US Supreme Court decided against Ledbetter by a 5-4 margin, arguing that the statute of limitations had passed since she did not file suit within 180 days of the first act of discrimination. One of the first bills President Barack Obama signed into law was the Lilly Ledbetter Fair Pay Act, which got rid of the 180-day filing requirement.

Women, here and elsewhere, are not asking for a hand-out. They are asking to be paid the same wage as men for the same work, which is fundamental to democratic ideals of equity and justice. Green Party MP Catherine Delahunty's bill, which proposes to amend the Equal Pay Act by allowing for gender pay comparisons, will help reduce the disparity. It is an important step forward for achieving the goal of gender pay equity.

* Ananish Chaudhuri is professor of experimental economics at the University of Auckland Business School.