The 10-Year baby window that is the key to the women’s pay gap

An interesting new twist on the effects of children on the pay gap between men and women. It has long been argued that having kids is one reason for the gap in pay between men and women but now a new study suggests that women who have their first child before 25 or after 35 eventually close the salary divide with their husbands. It's the years in between that are most problematic.

Claire Cain Miller discusses the new research at the Upshot blog at the New York Times. Millar writes,

Today, married couples in the United States are likely to have similar educational and career backgrounds. So while the typical husband still earns more than his wife, spouses have increasingly similar incomes. But that changes once their first child arrives.

Immediately after the first birth, the pay gap between spouses doubles, according to a recent study — entirely driven by a drop in the mother’s pay. Men’s wages keep rising. The same pattern shows up in a variety of research.

The new twist in the research is to point out that,

When women have their first child between age 25 and 35, their pay never recovers, relative to that of their husbands. Yet women who have their first baby either before 25 or after 35 — before their careers get started or once they’re established — eventually close the pay gap with their husbands.

Why?

One explanation is that the modern economy requires time in the office and long, rigid hours across a variety of jobs — yet pay gaps are smallest when workers have some control over when and where work gets done. In high-earning jobs, hours have grown longer and people are expected to be available almost around the clock. In low-earning jobs, hours have become much less predictable, so it can be hard for working parents to arrange child care.

The issue, in general, comes down to time. Children require a lot of it, especially in the years before they start school, and mothers spend disproportionately more time than fathers on child care and related responsibilities. This seems to be particularly problematic for women building their careers, when they might have to work hardest and prove themselves most, and less so for women who have already established some seniority or who have not yet started careers.

So it may not just be having kids that matters for the pay gap, but when you have them matters as well.

Early gender gaps among university graduates

In a recent article at VoxEU.org Marco Francesconi and Matthias Parey write on Early gender gaps among university graduates. A summary of their column reads

Women earning substantially less than men in all advanced economies, despite the considerable progress women have made in labour markets worldwide. This column explores the recent experience of university graduates in Germany soon after their graduation. Men and women enter college in roughly equal numbers, but more women complete their degrees. Women enter university with slightly better high school grades but leave with slightly lower marks. Immediately after university completion, male and female full-timers work very similar number of hours, but men earn more across the pay distribution. The single most important proximate factor that explains the gap is field of study at university (Emphasis added).

Francesconi and Parey go on to say,

Several channels may be at work behind our results. One could be related to human capital considerations. The importance of field of study indicates the relevance of pre-market choices. These also interact with subsequent market decisions (such as occupational choice) at the very beginning of professional careers (e.g. Liu 2016). In turn, such choices could be partly driven by gender differences in preferences (e.g. risk aversion and time discounting), self-confidence, competitiveness, earnings expectations, and valuation of non-wage benefits (e.g. Buser et al. 2014, Mas and Pallais 2017, Reuben et al. 2017). Another possible channel is related to statistical discrimination against women, based on employers’ difficulty in distinguishing more from less career-oriented women (e.g. Gayle and Golan 2012, Reuben et al. 2014). These mechanisms deserve more attention in future research.

The gender wage gap is really a child care penalty

A couple of graphs make this point.

and

These graphs come from a column at Vox. The column is A stunning chart shows the true cause of the gender wage gap by Sarah Kliff.

Kliff discusses research by Henrik Kleven, an economist at Princeton University. Kliff writes

His [Kleven] study is among a growing body of research that suggests what we often think of as a gender pay gap is more accurately discussed as a childbearing pay gap or motherhood penalty.

Childless women have earnings that are quite similar to men’s salaries, while mothers experience a significant wage gap.

Kliff continues,

A 2009 study led by University of Chicago’s Marianne Bertrand echoes that conclusion. It examined the earnings of thousands of business school graduates. It found that women earned an average salary of $115,000 right out of graduate school, while men earned $130,000. Men also worked, on average, a few more weekly hours and had a bit more prior experience as they entered the workforce.

But nine years into their careers, women saw their salaries rise to an average of $250,000 — while men’s salaries averaged out at $400,000. Men were earning 60 percent more than women.

“The one thing which is not changing is the effect of children,” Kleven says of the gender wage gap. “This is very persistent and constant. All the other sources are declining, but the child effect sticks, and that ends up taking over as the key driver.”

Historical drivers of the gender wage gap — a lack of education among women, for example — are disappearing. But the professional penalty women face for having children is stubborn, and it isn’t going anywhere.

Such findings are consistent with the findings of yet other researchers such as Claudia Goldin. Goldin (Professor of Economics at Harvard University) has written,

These findings provide more nuance in explaining why the gap widens with age and why it is greater for women with children. Whatever changes have already taken place in American society, the duty of caring for children — and for other family members — still weighs more heavily on women. And if you thought that moving to a more family-friendly nation would eliminate the gap, think again. In several nations, including Sweden and Denmark, a “motherhood penalty” in earnings exists, even though these nations have generous family policies, including paid family leave and subsidized child care.

Such considerations bring us to a very sensitive area: domestic arrangements at home, especially among couples with children. These are personal questions. In theory, gender earnings equality is possible when both parents take off the same amount of time and enjoy the same flexibility at work.

So the answer to the pay gap may be in the choices made within the home. And that makes it difficult for public policy to deal with.

On the link between US pay and productivity

From VoxEU.org comes a column by Anna Stansbury and Lawrence Summers on the relationship between pay and productivity in the US.

Since 1973, there has been divergence between labour productivity and the typical worker’s pay in the US as productivity has continued to grow strongly and growth in average compensation has slowed substantially. This column explores the causes and implications of this trend. Productivity growth appears to have continued to push workers’ wages up, with other factors to blame for the divergence. The evidence casts doubt on the idea that rapid technological progress is the primary driver here, suggesting rather that institutional and structural factors are to blame.

Stansbury and Summers writes,

Our contribution to these debates is, we believe, to demonstrate that productivity growth still matters substantially for middle income Americans. If productivity accelerates for reasons relating to technology or to policy, the likely impact will be increased pay growth for the typical worker.

We can use our estimates to calculate a rough counterfactual. If the ratio of the mean to median worker's hourly compensation in 2016 had been the same as it was in 1973, and mean compensation remained at its 2016 level, the median worker's pay would have been around 33% higher. If the ratio of labour productivity to mean compensation in 2016 had been the same as it was in 1973 (i.e. the labour share had not fallen), the average and median worker would both have had 4-8% more hourly compensation all else constant. Assuming our estimated relationship between compensation and productivity holds, if productivity growth had been as fast over 1973-2016 as it was over 1949-1973, median and mean compensation would have been around 41% higher in 2016, holding other factors constant.

This suggests that the potential effect of raising productivity growth on the average American’s pay may be as great as the effect of policies to reverse trends in income inequality – and that a continued productivity slowdown should be a major concern for those hoping for increases in real compensation for middle income workers.

This does not mean that policy should ignore questions of redistribution or labour market intervention – the evidence of the past four decades demonstrates that productivity growth alone is not necessarily enough to raise real incomes substantially, particularly in the face of strong downward pressures on pay. However it does mean that policy should not focus on these issues to the exclusion of productivity growth – strategies that focus both on productivity growth and on policies to promote inclusion are likely to have the greatest impact on the living standards of middle-income Americans.

So productivity still matters for pay with increases in productivity increases resulting in pay increases.

Claudia Goldin on the gender earnings gap

Claudia Goldin (Professor of Economics at Harvard University) writes, in the New York Times, on How to Win the Battle of the Sexes Over Pay (Hint: It Isn’t Simple.)

The executive summary

In sum, the gap is mainly the upshot of two separate but related forces: workplaces that pay more per hour to those who work longer and more uncertain hours, and households in which women have assumed disproportionately large responsibilities.

And now a bit more detail.

Yet it is also true that the time demands of many jobs can explain much of the pay difference, a finding that has sobering implications. Eliminating the gender earnings gap will require changes in millions of households and thousands of individual workplaces.

and

The gap is larger among more educated people, for example, and varies according to occupation, often in big ways. Among college graduates, it is far larger in business, finance and legal careers than in science and technology jobs. In health care, it is larger when self-employment is high (think dentists) and much lower when professionals are mainly employees (think pharmacists).

What’s more, the gap is a statistic that changes during the life of a worker. Typically, it’s small when formal education ends and employment begins, and it increases with age. More to the point, it increases when women marry and when they begin bearing children.

and

Similar patterns appear using data for women and men who have earned master’s degrees in business administration. Immediately after graduation, women earn 92 cents for each male dollar. A decade later they earn only 57 cents.

Correcting for time off and hours of work reduces the difference in the earnings between men and women but doesn’t eliminate it.

On the face of it, that looks like proof of disparate treatment. It may seem understandable that when a man works more hours than a woman, he earns more. But why should his compensation per hour be greater, given the same qualifications? But once again, the problem isn’t simple.

and

The data shows that women disproportionately seek jobs — including full-time jobs — that are more likely to mesh with family responsibilities, which, for the most part, are still greater for women than for men. So, the research shows, women tend to prefer jobs that offer flexibility: the ability to shift hours of work and rearrange shifts to accommodate emergencies at home.

Such jobs tend to be more predictable, with fewer on-call hours and less exposure to weekend and evening obligations. These advantages have a negative consequence: lower earnings per hour, even when the number of hours worked is the same.

Is that unfair? Maybe. But it isn’t always an open-and-shut case. Companies point out that flexibility is often expensive — more so in some jobs than others.

Certain job characteristics have a big impact on the gender earnings gap. I have looked closely at these issues, including the extent to which workers are:

• Subject to strict deadlines and time pressure
• Expected to be in direct contact with other workers or clients
• Instructed to develop cooperative working relationships
• Assigned to work on highly specific projects
• Unable to independently determine their tasks and goals

Occupations with a lower level of these characteristics (like jobs in science and technology) show smaller gaps, corrected for hours of work. Occupations with a higher level (like those in finance and law) have greater gaps. Men’s earnings tend to surge when there are fewer substitutes for a given worker, when the job must be done in teams and when clients demand specific lawyers, accountants, consultants and financial advisers. Such differences can account for about half the gender earnings gap.

Ask yourself, do you really care who your pharmacist is versus do you care who your doctor or lawyer is? A particular pharmacist not having to be there to deal with customers mean greater flexibility in hours worked but this comes with lower pay while the fact that people want a particular doctor or lawyer to deal with them means long hours with little flexibility but with higher pay to compensate.

These findings provide more nuance in explaining why the gap widens with age and why it is greater for women with children. Whatever changes have already taken place in American society, the duty of caring for children — and for other family members — still weighs more heavily on women. And if you thought that moving to a more family-friendly nation would eliminate the gap, think again. In several nations, including Sweden and Denmark, a “motherhood penalty” in earnings exists, even though these nations have generous family policies, including paid family leave and subsidized child care.

Such considerations bring us to a very sensitive area: domestic arrangements at home, especially among couples with children. These are personal questions. In theory, gender earnings equality is possible when both parents take off the same amount of time and enjoy the same flexibility at work.

So domestic arrangement with a more equal distribution of childcare may reduce the wage gap but it may also make the family poorer.

From a classic economic standpoint, if one spouse or partner can earn more by working less flexible hours, as a family, the couple would earn more money by having that parent in that job, while the other partner accepts the more flexible one. A man can certainly be the more flexible member of this household — though he typically is not. Such decisions need to be made couple by couple.

So the answer to the pay gap may be in the choices made within the home. And that makes it difficult for public policy to deal with.

Career costs of children (updated)

In short, big.

A new paper just out in the Journal of Political Economy (vol. 125, no. 2, April 2017, pp. 293-337) look at "The Career Costs of Children". It is by Jerome Adda, Christian Dustmann and Katrien Stevens.

The abstract reads:

We estimate a dynamic life cycle model of labor supply, fertility, and savings, incorporating occupational choices, with specific wage paths and skill atrophy that vary over the career. This allows us to understand the trade-off between occupational choice and desired fertility, as well as sorting both into the labor market and across occupations. We quantify the life cycle career costs associated with children, how they decompose into loss of skills during interruptions, lost earnings opportunities, and selection into more child-friendly occupations. We analyze the long-run effects of policies that encourage fertility and show that they are considerably smaller than short-run effects.

Adda, Dustman and Stevens point out that women have a number of disadvantages in the labour market and note that

Having children may be one important reason for these disadvantages, and the costs of children for women’s careers and lifetime earnings may be substantial.

Interestingly Adda, Dustmann and Stevens look at the gender wage gap,

Using a sample of comparable male cohorts who made similar educational choices, we run simulations to understand better the wage differences between women and men over the life course and how these are affected by fertility decisions. We find that fertility explains an important part of the gender wage gap [about one third], especially for women in their mid-30s.

What drives the cost of children?

Thus, the costs of fertility consist of a combination of occupational choice, lost earnings due to intermittency, lost investment into skills, and atrophy of skills while out of work and a reduction in work hours when in work. In addition, fertility plans affect career decisions already before the first child is born, through the choice of the occupation for which training is acquired—an aspect that is important not only for policies aimed at influencing fertility behavior but also for understanding behavior of women before children are born. An important additional aspect for the lifetime choices of fertility and career is savings that help women to smooth consumption. Furthermore, fertility leads to sorting of women into work, with the composition of the female workforce changing over the life course of a cohort of women, because of different career and fertility choices made by women of different ability.

and early occupational choice really affects wages,

Occupational choices at the beginning of the career, and before any fertility decision is made, represent 19 percent of the overall costs induced through wages, indicating that a substantial portion of the wage-induced career costs of children is already determined before fertility decisions are made, through occupational choices conditioned on expected fertility pattern.

Another factor influencing women's is is the amenity value of an occupation with regard to children (which can be interpreted as the ease with which women in these occupations can combine work with child raising).

We present estimates of these amenity values, normalized to be zero for routine occupations, in panel C of table 3. The figures show that—in comparison to routine jobs—abstract jobs are least desirable when children are present. Our estimates imply that if abstract and manual occupations had the same amenity value as routine ones,the proportion of women opting for abstract or manual occupations would increase by 5 percent. The amenity of part-time work—an option chosen by many mothers in our data—is likewise lower in abstract jobs, as the second row of this panel shows. Our estimates imply that if women in abstract jobs had the same amenity value for part-time jobs as in routine ones, the proportion of part-time work in abstract jobs would be 7 percent higher by the age of 30.

All this points to there being a complex interaction between career and fertility decisions with the costs of children often being high.

Update: Thanks to a message in the comments section we learn that you can get an open access version of the paper here.

Marriage, kids, and the wage gap

The career dynamics of the gender gap for graduates of the Chicago Business School, as studied by Bertrand, Goldin, and Katz (2010), illustrate a common pattern. While women and men start their careers with similar earnings, a substantial gap arises over time, and the arrival of children is a major concurrent factor in the rising earnings gap. At least in this highly (and homogeneously) educated population, only a small share of the gender gap is due to premarket factors such as training and coursework; instead, family formation sets the gap in motion.

In short, kids are bad for the income of women. The above quote comes from Specialization Then and Now: Marriage, Children, and the Gender Earnings Gap across Cohorts by Chinhui Juhn and Kristin McCue, Journal of Economic Perspectives—Volume 31, Number 1—Winter 2017—Pages 183–204.

The conclusion of the paper reads, in part:

Given women’s gains in the labor market, Becker’s (1981) seminal model predicts that patterns of specialization should become less gendered. It predicts that the gender earnings gap associated with marriage should fall, and it has. However, the gender earnings gap associated with children has been more persistent, and the proportion of the remaining gender earnings gap associated with children has risen.

The persistent nature of the motherhood gap—particularly among professional women poised for high-paying careers, and among women who have access to generous leave benefits and childcare subsidies—brings home the point that women still devote much more time to child-rearing over the course of their careers than do men with similar human capital characteristics. One set of explanations put forward revolve around social norms that are slow to change and resist economic forces (Fortin 2005; Bertrand 2011; Bertrand, Kamenica, and Pan 2015). Social norms can serve as both push or pull factors. On the pull side, women may still by-and-large identify themselves as the primary caretaker of children. On the push side, work places may still be governed by norms from an earlier era of male breadwinners with stay-at-home wives. According to this set of norms, an employee is a “good” employee only if he or she is married to the job and willing to work long hours. A number of papers have shown that the gender gap is particularly large in jobs that require long hours (Goldin 2014; Gicheva 2013; Cha and Wheeden 2014; Cortes and Pan 2016) (Emphasis added.)

As an example of this consider some recent research that suggests women earn, on average, around 31% less that men in STEM (Science, Technology, Engineering or Mathematics) subjects after gaining a PhD.

The obvious question is why.

Perhaps surprisingly the answer to this questions can be reduced to just two factors: 1) field of study and 2) kids.

But after controlling for differences in academic field, the pay gap between males and females is reduced to around 11% in first-year earnings. There is a tendency for women to graduate in less-lucrative academic fields - such as biology and chemistry than comparatively industry-friendly fields, such as engineering and mathematics.

This 11% difference can be explained by the finding that married women with children earned less than men. Note that an unmarried, childless woman earned, on average, the same annual salary after receiving her doctorate as a man with a PhD in the same field.

These results come from a paper, "STEM Training and Early Career Outcomes of Female and Male Graduate Students: Evidence from UMETRICS Data Linked to the 2010 Census" by Catherine Buffington, Benjamin Cerf, Christina Jones and Bruce A. Weinberg published in the American Economic Review: Papers & Proceedings 2016, 106(5): 333–338.

This would suggest that if you are studying the pay gap between men and women two things to take into account are hours worked and time off for kids.

Some non-shocking statistics on gender pay from the IFS

At the IEA blog Ryan Bourne writes,

‘On average, women in paid work receive about 18% less per hour than men’. So reads the opening line of an Institute for Fiscal Studies–Joseph Rowntree Foundation press release for a new briefing note today.

Here we go again. It’s a shame that another two high-profile organisations are propagating this. As we argued in last week’s ‘How much do you earn?’ paper, these aggregate statistics are largely meaningless and designed to create a sense of unfairness. Are these workers full time or part time? In the public or private sector? How many years’ experience? The education level of the workers? What type of roles? What is the age profile of the workers? And what about all those compensating differentials which we know are important?

This is not merely theoretical, because using these stats as a catalyst to force pay to be equal for work which the market rates unequally produces damaging distortions in the economy.

But taken with all these caveats, the IFS report helpfully provides us with some facts which are pretty intuitive:
1) The gender wage gap per hour is falling (down from 28 per cent to 18 per cent between 1993 and 2015), which we’d expect given educational and societal trends. Though it must be said, this is not based on the ONS’s preferred definition of the pay gap, or their preferred data source.
2) The wage gap between young men and women, where you’d expect societal and educational trends to bite most, is just 6 per cent (before you even control for any of the points above).
3) The wage gap prior to having children is much lower at 10 per cent than the overall average wage gap, suggesting that having children is a big contributory factor.
4) Indeed, following the arrival of the first child, the wage gap steadily increases, on average, to 33 per cent after 12 years.
5) Why is this? A big clue is that 20 years after the birth of their first child, women have on average been in paid work for four years less than men and have spent nine years less in paid work of more than 20 hours per week.

A lot of research now tell us that points 4 and 5 are some of the most important reasons for the male/female wage gap.

In a paper, "A grand gender convergence: its last chapter" by Claudia Goldin in the American Economic Review (104(4): 1091-1119),  it is argued that reducing the gender gap in pay requires greater temporal flexibility, to help counter points 4 and 5, in the labour market. Being able to work long hours and work particular, antisocial hours is limited by childcare responsibilities. This effects women more than men and thus changes to the structure of labour markets with regard to hours worked and remuneration will advantage women to a greater degree than men.

The abstract of the paper reads,

The converging roles of men and women are among the grandest advances in society and the economy in the last century. These aspects of the grand gender convergence are figurative chapters in a history of gender roles. But what must the "last" chapter contain for there to be equality in the labor market? The answer may come as a surprise. The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn't hurt). But it must involve changes in the labor market, especially how jobs are structured and remunerated to enhance temporal flexibility. The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours. Such change has taken off in various sectors, such as technology, science, and health, but is less apparent in the corporate, financial, and legal worlds.

But presumably firms reward individuals who labour long hours and work particular hours because it is profit maximising for them to do so and thus this may be a feature of the particular industries in which it occurs. If so this could be a difficult thing to change, it would take either a change in the cost structure of the industry, what would bring about such a change?, or a change on the demand side, that is, customers would have to start demanding a different set of goods or services. Why would they do so?

Female/male pay gaps in STEM subjects

New research suggests that women earn, on average, around 31% less that men in STEM (Science, Technology, Engineering or Mathematics) subjects within a year of completing a PhD.

An obvious question is why.

Perhaps surprisingly the answer to this questions can be reduced to just two factors: 1) field of study and 2) kids.

But after controlling for differences in academic field, the pay gap between males and females is reduced to around 11% in first-year earnings. There is a tendency for women to graduate in less-lucrative academic fields - such as biology and chemistry than comparatively industry-friendly fields, such as engineering and mathematics.

This 11% difference can be explained entirely by the finding that married women with children earned less than men. Note that an unmarried, childless woman earned, on average, the same annual salary after receiving her doctorate as a man with a PhD in the same field.

So it turns out kids are bad for your income, and not just on the expenditure side but also the earnings side!!

These results come from a paper, "STEM Training and Early Career Outcomes of Female and Male Graduate Students: Evidence from UMETRICS Data Linked to the 2010 Census" by Catherine Buffington, Benjamin Cerf, Christina Jones and Bruce A. Weinberg published in the American Economic Review: Papers & Proceedings 2016, 106(5): 333–338.

There are a few things to keep in mind with the study. Given that the data is on PhD holders these are specialised labour markets. There are 1,237 students - 867 male and 370 female who graduated between 2007 and 2010 from just 4 universities in the study. Also the labour market outcomes likely reflect some unobserved heterogeneity, including in hours worked, and potentially household decisions on housework and child care. There is also the question of what happens in later post-doc years.

That said, the results, in particular the effects of children on earnings, are consistent with other work I have seen on pay differences between men and women. A number of other studies have reported similar gender pay gaps and have identified similar contributing factors — but few have systematically broken down the relative contributions of the different variables.

CEO pay

Greg Mankiw points us to this paper on CEO pay:

Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges

Steven N. Kaplan The abstract reads:

In this paper, I consider the evidence for three common perceptions of U.S. public company CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for their performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s although they remain above their long-term historical average. The ratio of large-company CEO pay to firm market value is roughly similar to its level in the late-1970s and lower than its pre-1960s levels. These patterns suggest that similar forces, likely technology and scale, have played a meaningful role in driving CEO pay and the pay of others with top incomes. With regard to performance, CEOs are paid for performance and penalized for poor performance. Finally, boards do monitor CEOs. The rate of CEO turnover has increased in the 2000s compared to the 1980s and 1990s, and is significantly tied to poor stock performance. While corporate governance failures and pay outliers as well as the very high average pay levels relative to the typical household undoubtedly have contributed to the common perceptions, a meaningful part of CEO pay appears to be market determined and boards do appear to monitor their CEOs. Consistent with that, top executive pay policies at over 98% of S&P 500 and Russell 3000 companies received majority shareholder support in the Dodd-Frank mandated Say-On-Pay votes in 2011.

Another thing about CEO pay and performance worth considering isn't the relationship between the current CEO's performance and pay but the relationship between the next CEO's performance and the CEO's pay. That is, what effect does CEO pay have on the performance of the guys who want to replace the current CEO? A decent remuneration package for the CEO may well increase effort on behalf of those who want to be the next CEO.

Why women make less than men

In studies from the U.S. to Sweden, pay discrimination can't explain the disparity between what men and women earn. Women earn less because they work fewer hours. Or so writes Kay Hymowitz in the Wall Street Journal.

Ms Hymowitz writes,

First, the Atlantic magazine announced "the end of men." Then a Time cover story in March proclaimed that women are becoming "the richer sex." Now a Pew Research Center report tells us that young women have become more likely than young men to say that a high-paying career is very important to them. Are we really in the midst of what Pew calls a "gender reversal?"

One stubborn fact of the labor market argues against the idea. That is the gender-hours gap, close cousin of the gender-wage gap. Most people have heard that full-time working American women earn only 77 cents for every dollar earned by men. Yet these numbers don't take into account the actual number of hours worked. And it turns out that women work fewer hours than men.

The Labor Department defines full-time as 35 hours a week or more, and the "or more" is far more likely to refer to male workers than to female ones. According to the department, almost 55% of workers logging more than 35 hours a week are men. In 2007, 25% of men working full-time jobs had workweeks of 41 or more hours, compared with 14% of female full-time workers. In other words, the famous gender-wage gap is to a considerable degree a gender-hours gap.

And this just raises the question, Why do women spend less time at work?

The main reason that women spend less time at work than men—and that women are unlikely to be the richer sex—is obvious: children. Today, childless 20-something women do earn more than their male peers. But most are likely to cut back their hours after they have kids, giving men the hours, and income, advantage.

But can't good government mandated family-leave and child-care policies fix all of this? Ms Hymowitz continues,

Sweden and Iceland are frequently held up as models in this regard [generous family-leave and child-care policies], and they do have some of the most extensive paternity and maternity leave and publicly funded child care in the world.

Yet even they also have a persistent hours and wage gap. In both countries, mothers still take more time off than fathers after the baby arrives. When they do go back to work, they're on the job for fewer hours. Iceland's income gap is a yawning 38%—that is, the average women earns only 62 cents to a man's dollar. Even Sweden's 15% gap—though lower than our [U.S.] 33% one—is far from full parity.

In short, if you work less you earn less. For the foreseeable future women will work less and thus earn less than men.

Gender and human capital

It is common today for people to note that females are more numerous than males in most levels of education, and that they perform better in school. The obvious question this raises is Why? One possible answer is that there are simply biological differences between men and women that make men better at tasks that require force, while women are better at task for which reasoning is paramount. Over at the Economic Logic blog the Economic Logician comments on this idea:

Mark Pitt, Mark Rosenzweig and Nazmul Hassan build a model of investment in human capital that differentiates genders. Better nutrition improves strength and education improves skills. Individuals make these choices, as well as in which activities to work. Using panel data from rural Bangladesh, they find that model is a reasonable description of reality. That is particularly interesting, because rural Bangladesh does not strike me as an economy where brain would dominate brawn. Also of interest is that improvements in health do not increase education for men, it may even reduce it, while women education clearly benefits from them. Thus policies that focus on health improvements are likely to improve women's schooling more than men's, lead to more occupational differentiation across genders, and a larger gender wag gap.

An interesting result, should this turnout to be true, is that as the so-called "knowledge economy" expands more intelligence/education will be asked for from employees, replacing the need for force, and thus women will find more opportunities and better pay. This will result in a gender pay gap.

The gender pay gap does not exist (updated)

David Green blogs, at the Telegraph.co.uk, on the controversial topic that The gender pay gap does not exist. Green writes in response to Harriet Harman's, the UK Minister for Women and Equality, claims that women in the UK earn on average 22.6% less per hour than men and assumes that this difference is the result of discrimination against women by men. Green claims that the UK Government's own figures do not support such a conclusion. Green writes

Three official surveys are used by the Office for National Statistics (ONS): a survey of employers called ASHE (the annual survey of hours and earnings), a survey of households (the Labour Force Survey) and the panel dataset of the New Earnings Survey, which provides information from 1975 to 2006. [...]

But as the ONS said in its monthly Economic & Labour Market Review, published last year just before the Government committed itself to forcing the Equality Bill through, the gender pay gap 'does not necessarily indicate differences in rates of pay for comparable jobs'.

He goes on to say

According to ASHE, in 2007 a gender pay gap does not open up until women reach about 30 years of age. From ages 18-29 there is hardly any difference and, according to the Labour Force Survey (LFS), women aged 22-29 are paid on average slightly more per hour than men. As the ONS concludes, having children is the decisive factor, not being a woman. Historical data confirm this conclusion. Based on the New Earnings Survey panel data, in 1975 there was a pay gap from the age of 18 onwards, but in 2006 no such gap existed until age 34. Why? In 1975 women tended to have children in their 20s and by 2006 it was more common to have them in their 30s. As the average age of child-rearing increased so too did the age at which the pay gap kicked in.

Then there are some other disparities, which are very hard to explain as the result of discrimination. Overall the hourly rate of pay is higher for men, but not when they work from 10-20 hours per week or from 20-30 hours per week, when on average women earn slightly more. If discrimination is the explanation, why would (male) employers discriminate against women who work more than 30 hours a week but not those who work fewer hours? Moreover, women who work part-time earn more than men in companies with 500 or more employees but less than men in companies with fewer then 25 employees.

Green argues that what the data tends to suggest is that the vital difference is not between men and women but between women with dependent children and those without, whether they be male or female. Green notes,

The hourly rate of pay for women who are neither married nor cohabiting is slightly higher than for men in the same situation. For men and women who are married or cohabiting the hourly pay gap is 14.5% and the gap widens with the number of children. Women with one dependent child earn on average 12.3% less than men and with four or more dependent children 35.5% less.

Thus the UK government's emphasis on the gender pay gap of 22.6% looks more like an an abuse of official statistics, than a certain fact, and to infer that the difference in the average hourly rate is the result of discrimination is an abuse of logic. But given how often we find governments abusing both statistics and logic, this is no surprise.

Update: Thanks to Jim Donovan in the comments I was alerted to this piece from Tim Harford

Katz and Goldin, with Marianne Bertrand of Chicago’s Booth School of Business, have now produced a new study, examining the experience of Booth’s MBA alumni – a high-flying group from whose ranks one would expect future CEOs to emerge. The outstanding feature of this research is the very detailed data available on this group: their pre-MBA experience, the courses they took and the grades they earned, their career progression afterwards, and the timing of their families. Women did achieve worse grades, and avoided hardcore classes in finance: but the differences were tiny. Far more important was what happened when children came along. If you look only at promotions and earnings, childless women are all but indistinguishable from men. The moment children arrive on the scene, a big gap opens up.

“The penalty for career interruptions is huge,” Bertrand told me in a recent interview. New mothers are derailed from the fast track in investment banking or consulting, and their potential earnings fall by about 40 per cent. The gap is aggravated by the fact that many of these women are married to men so rich that they decide to drop out of the labour force altogether. (Emphasis added.)

Can pay regulation kill?

Here is a discussion, by Carol Propper and John Van Reenenof, of a new paper that argues pay regulations can kill. Economists have long warned of the unintended consequences of market regulation, including regulation of the labour market. What seems "fair" on the face of it – like paying people the same wage for doing the same job regardless of where they work – may turn out in practice to be foul. While economists often worry about the minimum wage pricing people out of jobs, a regulation that can impose a maximum wage and price people out of jobs has received little attention. Propper and Van Reenenof point out that an example of such a pay regulation is centralised wage-setting, where pay is mandated to be (almost) the same across different labour markets, effectively imposing a maximum wage on people living in areas where labour markets outside the regulated sector are strong.

This kind of centralised pay-setting happens in many public sector labour markets like health, teaching and the police. Nowhere is centralised pay-setting more important than in the UK National Health Service (NHS). More than a quarter million nurses in England have their pay set by a single pay review body. The process allows some local flexibility, but in practice the gap between the wages paid to a nurse in a low outside wage area – such as Newcastle in the North East – and a high wage area –such as London –is small compared to the pay gap between women who are not nurses. In recent research, we examine in detail how centralised pay-setting for nurses in the NHS affects hospital performance by tracking changes in the outside wage and changes in performance in over 100 English hospitals over a six-year period. (Hall et al. 2008)

The outcomes of the centralised pay system can be fatal. The pay regulation means that hospitals which are in high wage areas treat fewer patients and these patients have poorer health outcomes. And these effects are far from minor. Results from the Hall et al. (2008) study point to that fact that a 10% increase in the gap between the wages paid to NHS nurses and those paid to women working in the private sector locally raises the fatality rate among people admitted with a heart attack by 5%. To put this into perspective the size of this effect is not dissimilar to the reductions in heart attack fatalities brought about by the greater use of aspirin and other clot-busting drugs in recent years.

What Hall et al. (2008) did was look at the quality and productivity of nursing across the UK, this being measured by the percentage of those admitted to hospital after a heart attack who died in the subsequent 30 days. What was found was that the richer the area surrounding the hospital the worse the survival rate. This is in contrary to what we would expect given the often discussed connection between poverty and bad health. We would expect the death rates to be higher in poor areas. The reason for this "rich area effect" is the centralised pay-setting which results in wages being the same right across the country, with little responsiveness to local labour market conditions. But it isn't that nurses wages are too high in low wage areas, but that they are too low in high wage areas. In high wage areas this leads to both a shortage of people willing to do the job itself and hospitals relying upon agency staff who are not constrained by the national pay scale. The problem with this is that the agency staff are, by the very nature of their shift by shift employment, unlikely to know the systems and hospitals as well as permanent staff. Local and tacit knowledge gained via experience in that particular situation is important and unknown to the agency staff. This lowers the quality of care and people die.

The answer, at least as far as the Adam Smith Institute see it,

is to abolish such national pay rates and allow local employers to pay what they need to attract the staff they desire.

This makes sense, and may save lives.

The state of the public service. (updated x3)

I see that the National Business Review is reporting that Mark Prebble, the State Services Commissioner has announced that he will be leaving his job about a year earlier than planned. This is apparently for "health reasons". However as the NBR also points out

... the temptation to chalk him up as another casualty of a series of minor scandals about the alleged politicization of the public service in the last year may prove irresistible.

At the same time the NBR has an article by Dr. John Gibson, Professor of Economcis at the University of Waikato, reporting on research into why public servants in New Zealand get paid 20 per cent more than similar workers in the private sector. Gibson writes,

My research shows that this pay gap is not due to obvious differences in job conditions, such as stress, whether jobs require physical labour, how interesting the work is or the scope for improving ones skills.

But the source of this pay gap has become apparent in recent months. It's the "bite your lip and be the fall guy" premium. (My emphases.)

May be 20% isn't enough for Mark Prebble. Gibson goes on to say,

This economy with the truth is aided and abetted by some of the weakest public sector leadership that we have seen in many years. Why don’t public sector CEOs stand up and defend the integrity of advice that their staff have given? Why do they roll over and play dead while the politicians tell porkies?

But this comes at a price to New Zealand as a whole. The public service is the major supplier of economic policy advice in this country. It dominates the market for advice in a manner not true overseas and so its all the more important that their advice is truly independent. There are few outside checks on what the public service says. Gibson writes,

It is no wonder that almost all of the researchers in Treasury have either left or taken secondments so that they spend as little time as possible at No 1, The Terrace. What’s the point, when research is systematically ignored or distorted by politicians?

What's the point, when senior management check which way the wind is blowing before taking a position and will even disassociate themselves from research done in their own department.

Having a compliant rather than an independent, research-led Treasury is hugely costly to New Zealand. Unlike in larger countries, there are few other sources of evidence-based advice on which to set economic policy.

Good independent economic advice is a must if New Zealand is to move up the OECD rankings as we are told by the government we must do. But if the government really believes this then why is it not encouraging honest, open and independent advance from its own departments?

Update: Not PC comments on the issue here: The demise of the Head Bureaucrat.

Update 2: Kiwiblog comments on Mark Prebble here: Prebble quits.

Update 3: The New Zealand Herald story on Mark Prebble is here.