Post on 01-Apr-2015
The Economics of Pay Differences
Wendy A. Stock, Ph.D.
Professor and Department HeadDepartment of Agricultural Economics and
Economics
Why Do Men Earn More than Women?
Outline
Race, Gender, & Ethnicity in the Work
Force
Pay Gaps Among People
Discrimination
Antidiscrimination Policy
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
White90%
Other10%
1962
White81%
Black12%
Asian5%
Other2%
2012
White73%
Black14%
Asian8%
Other5%
2050
Race, Gender, and Ethnicity in the Work Force
Sources: U.S. Department of Labor, “Labor Force Characteristics by Race and Ethnicity, 2010” August 2011; Toossi, M. “A new look at long-term labor force projections to 2050,” Monthly Labor Review, November 2006; Pew Hispanic Center, “Hispanics: People in Motion,” 2005.
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Males64%
Fe-males36%
1962
Race, Gender, and Ethnicity in the Work Force
Males53%
Fe-males47%
2012
Males53%
Fe-males47%
2050
Sources: U.S. Department of Labor, “Labor Force Characteristics by Race and Ethnicity, 2010” August 2011; Toossi, M. “A new look at long-term labor force projections to 2050,” Monthly Labor Review, November 2006; Pew Hispanic Center, “Hispanics: People in Motion,” 2005.
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Non-Hispanic94%
Hispanic6%
1980
Non-His-
panic86%
His-panic14%
2012
Non-His-
panic76%
His-panic24%
2050
Race, Gender, and Ethnicity in the Work Force
Sources: U.S. Department of Labor, “Labor Force Characteristics by Race and Ethnicity, 2010” August 2011; Toossi, M. “A new look at long-term labor force projections to 2050,” Monthly Labor Review, November 2006; Pew Hispanic Center, “Hispanics: People in Motion,” 2005.
Pay Gaps & Earnings Ratios
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Women earn 77.4 cents
for every dollar men earn
National Committee on Pay Equity
June 2012Pay gap persists for African-AmericansCNN Money
July 2010
Latino wage gap larger in Texas than
rest of U.S.Houston Chronicle June 2009
Pay Gaps & Earnings Ratios
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
An earnings ratio measures the earnings of one group as a fraction of the earnings of
another group
A pay gap is the percent difference in earnings between two groups
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
White Female
Hispanic Male
Hispanic Female
Black Male
Black Female
Asian Male
Asian Female
-80 -70 -60 -50 -40 -30 -20 -10 0 10
-24
-55
-73
-35
-54
7
-22
Pay Gaps Relative to White Males, 2011
Percent Difference from White Male EarningsSource: BLS Current Population Survey Data. Includes ages 16+ employed full-time wage and salary workers across all industries and all occupations., excluding incorporated self-employed. Hispanic male and fe-male values are computed for any race. White, Black, and Asian values are computed for any ethnicity.
Pay Gaps & Earnings Ratios
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
White Male
White Female
Hispanic Male
Hispanic Female
Black Male
Black Female
Asian Male
Asian Female
0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10
Earnings Ratios Relative to White Males, 2011
Proportion of White Male EarningsSource: BLS Current Population Survey Data. Includes ages 16+ employed full-time wage and salary workers across all industries and all occupations., excluding incorporated self-employed. Hispanic male and fe-male values are computed for any race. White, Black, and Asian values are computed for any ethnicity.
Pay Gaps & Earnings Ratios
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Why Are There Pay Gaps?
Productivity-related Characteristics
Job Differences
Other Factors
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Job Differences
Men
Women
White
Black
Asian
Hispanic
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Management & Professional Service Sales & Office Construction & Maintenance Production & Transportation
Percent of Group in Each OccupationSource: Author’s chart based on U.S. Department of Labor, “Labor Force Characteristics by Race and Ethnicity, 2010” Report 1032, August 2011.
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Productivity-related Characteristics
Less than High School Diploma
High School Graduate, no college
Some College or Associate Degree
Bachelor's Degree or higher
0 10 20 30 40 50 60 70
Hispanic Asian Black White
Percent of Demographic GroupEducational attainment differs among various race and ethnic groups. Over 60 % of Asians over age 25 who are in the labor force hold a Bachelor's degree or higher; less than 20% of Hispanics with the same characteristics hold a Bachelor's degree or higher. Source: Author's calculations based on 2011 BLS data for people age 25 or older in the civilian labor force .
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Important to control for observable job and productivity-related differences
between groups when interpreting pay gap data.
Pay Gaps
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Other Sources of Pay Gaps
Female-Male Black-White Hispanic-non-Hispanic 0%
10%20%30%40%50%60%70%80%90%
100%
Percent of Pay Gap Due to Observable and Unobservable Factors
Due to Observable Differences Due to Other Factors
Per
cen
t o
f P
ay G
ap
Observable differences include age, education, marital status (for Hispanic comparison only), and region and occupation (for gender and race comparisons only) Sources: Altonji and Blank (1999) “Race and Gender in the Labor Market,” in Ashenfelter and Card, eds. Handbook of Labor Economics, vol. 3C for race and sex comparisons. Kerr, Orrenius, and Zavodly (2010) “Texas’ Latino Pay Gaps: Taking a Closer Look” SouthwestEconomy, Federal Reserve Bank of Dallas. Data for Hispanic-non-Hispanic gap are calculated within Texas only.
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
differential treatment based on arbitrary characteristic
Discrimination
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Types of Discrimination
Taste-based discrimination when people have preferences
not to work with, hire, or buy from the discriminated group
Statistical discrimination when people use information about
the average characteristics of a group to make decisions about an individual member of that group
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Education Discrimination
Plessy v. Ferguson 1896
Brown v. Board of Education 1954
Elizabeth Eckford attempting to enter Little Rock High Central School through a crowd of angry white students, 1957
Persistent School Quality Differences
School quality Resources: Eric Hanushek at Stanford’s Hoover Institution: http://hanushek.stanford.edu/publications/economics-school-quality-0 Boozer, Krueger, Wolkon (1992) “Race and School Quality Since Brown vs. Board of Education,” NBER working Paper 4109: http://www.nber.org/papers/w4109
Housing Discrimination
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Housing discrimination’s new main
target? The disabled
Medill Reports Chicago
(Northwestern University)
May 2012
Pacifist Boston Landlady Refuses
Apartment to National Guardsman
Digital Journal June 2012
Bridgeport housing discrimination
suit settledChicago Tribune
June 2012
http://articles.chicagotribune.com/2012-06-01/business/chi-bridgeport-discrimination-suit-20120601_1_prudential-rubloff-properties-daniel-and-adrienne-sabbia-willborns
Boston: http://www.digitaljournal.com/article/326074#ixzz1wvwhFjlA Disabled housing discrimination: http://news.medill.northwestern.edu/chicago/news.aspx?id=206162
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Lending Discrimination
Pope, Devin G., and Justin R. Sydnor. 2011. “What’s in a Picture? Evidence of Discrimination from Prosper.com.” Journal of Human Resources 46(1): 53–92.
Mortgage Lending Discrimination: http://www.dollarsandsense.org/archives/2010/1110campen.html
Racial Disparities in Peer-
to-Peer Lending
Loan listings with blacks in the
attached picture are 25 to 35
percent less likely to receive
funding than those of whites
with similar credit profiles.
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
• equally productive workers treated differently
• workers not equally productive treated the same
Labor Market Discrimination
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Employer Discrimination
when employers base their employment decisions on prejudice against certain workers
Darity, W. A., and Mason, P. L. (1998) “Evidence on Discrimination in Employment: Codes of Color, Codes of Gender,” Journal of Economic Perspectives, 12(2):63-90. Presents an overview of the economic research on race and gender discrimination in the labor market
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Customer Discrimination
when customers have base their purchasing decisions on the race, sex, or other demographic
characteristics of the workers with whom they interact
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Statistical Discrimination
using information about the average characteristics of a group to judge an individual member of that group
Antidiscrimination Policy
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
1964 Civil Rights Act first federal legislation to prohibit
employment discrimination
Antidiscrimination Policy
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Affirmative action
policies that mandate taking action to ensure the equal treatment of people regardless of their race, creed, color, or
national origin.
http://www.balancedpolitics.org/affirmative_action.htm
Antidiscrimination Policy
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Americans with Disabilities Act
Age Discrimination in Employment Act
Antidiscrimination Policy Effects
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
1967 1972 1977 1982 1987 1992 1997 2002 20070.60
0.70
0.80
0.90
1.00
Black/White Earnings Ratios
Year
Bla
ck
/Wh
ite
Me
dia
n E
arn
ing
s
If laws prohibiting race discrimination are effective, black/white earnings ratios should increase after the laws are passed, ceteris paribus. The black/white earnings ratios increased after the mid-1960s, particularly for women. The black/white earnings ratios for men have remained fairly steady since the mid-1990s, but they declined slightly for women after the 1970s. Source: Author's computations based on U.S. Census Data. Includes median earnings of full-time year round workers 15 years old and over beginning in 1980, and 14 years old and over for previous years. Before 1989 earnings are for civilian workers only.
Black Females/White Females
Black Males/White Males
Antidiscrimination Policy Effects
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
1967 1972 1977 1982 1987 1992 1997 2002 20070.50
0.60
0.70
0.80
0.90
1.00
Female/Male Earnings Ratios
Year
Fe
ma
le/M
ale
Me
dia
n E
arn
ing
s
If laws prohibiting sex discrimination are effective, the female/male earnings ratios should increase after the laws are passed, ceteris paribus. The female/male earnings ratios for blacks increased after the mid-1960s, but have flattened or declined since the early 1990s. The female/male earnings ratios for whites have risen fairly steadily since the mid-1980s. Source: Author's computations based on U.S. Census Data. Includes median earnings of full-time year round workers 15 years old and over beginning in 1980 and 14 years old and over for previous years. Before 1989 earnings are for civilian workers only.
Black Females/Black Males
White Females/White Males
Antidiscrimination Policy Effects
Race, Gender, & Ethnicity
Pay Gaps DiscriminationAntidiscrimination
Policy
Research: age discrimination laws are associated with increased employment of older workers
Research: ADA is associated with lower levels of employment of disabled workers.
Discussion QuestionsIn their research paper, “Beauty, Productivity, and Discrimination: Lawyers’ Looks and Lucre,” [Journal of Labor Economics, 16(1) (January 1998):172-201] economists Jeff Biddle and Daniel Hamermesh examined the earnings and job placement of a large sample of lawyers. Their research data included objective ratings of the lawyers’ looks. The research found that better looking attorneys earned more than other lawyers. Why might better looking attorneys earn more?
In the early 1900s, many states passed legislation designed to “protect” women workers. In California, for example, a 1916 law prohibits women from employment in jobs that involve lifting “any excessive burden”, cleaning moving machinery, employment in work environments that are not sufficiently lighted, ventilated, or sanitary, messenger service, bell boy, trucking, gas/electric meter reader, taxi cab driver, elevator operator, guard on streets or subways, work in pool hall/bowling alley, delivery service, or “employing women under any conditions detrimental to their health or welfare.” How would these protective laws affect the employment and wages of women and men workers?
Discussion Questions
Other Sources for Discussion
The Economics of Pay Differences
Wendy A. Stock, Ph.D.
Professor and Department HeadDepartment of Agricultural Economics and
Economics
Why Do Men Earn More than Women?