Is the Market Putting an End to the Pay Gap?

by Patrick Brennan

President Obama is making a push this week for more legislation and executive action to close the pay gap that exists between full-time men employed in the United States and full-time women. The statistic Democrats usually employ, that women earn 77 cents on the dollar men do, is no more than a measurement of that arbitrary ratio.

While it works as a ploy to get people to pay attention, spending a whole few days using it to sell new discrimination legislation is going to draw you into some problems — as White House economist Betsey Stevenson found out yesterday and press secretary Jay Carney found out today (almost offensively retorting to a reporter that he expected something “more precise” from Reuters when it’s the White House that’s being so imprecise).

One of the best pieces of evidence of how arbitrary that ratio: It’s much smaller for younger women. Here’s the gap as measured by Pew last year:

As you can see, the overall wage gap is 1) narrower than the White House claims (the 77-cent stat uses full-time workers only, which doesn’t take into account that some full-timers work more hours than others) and 2) is narrowing over time — because younger women are earning a lot more relative to men their age than older women are. 

Catherine Rampell, formerly of the Times and now of the Washington Post, supplied a BLS chart in 2010 that breaks it down further:

This isn’t because younger women are better equipped to handle discrimination; it’s because they’re better educated, better accomplished, and more professionally ambitious than earlier generations. That’s largely because there used to be formal and strong informal discrimination against women professionally and educationally. But without those barriers, women exceed men in some of those respects: They’re earning more in the same occupations than they used to and they’re choosing more lucrative occupations (including ones with longer hours).

The market, therefore, is closing the wage gap, but only because the market inputs have changed. That’s why the gap was never mostly about discrimination in the first place.

The pay gap the White House and liberals like to cite is not a useful statistic to measure discrimination or the relative treatment and empowerment of women in the workforce. When you control for other factors, it’s a real issue, but one small and nuanced enough that it makes no sense to propose to fix it through more zealous federal laws.

On the other hand, it does offer a measurement of the relative economic roles of men and women, which is interesting. Because they so outstrip men in achievement, without controlling for occupation, women are now outearning men in some places at some ages  (though relatively few – it’s a fact that Hannah Rosin made too much of in The End of Men). This generation’s strong relative earnings performance should hold up later in life to some extent, and it’s already helped shrink the overall gap substantially, as you can see on Pew’s chart above.

But it’s not going to close the gap for women in general, and especially older women: Younger women are likely going to start making lower-earning choices versus men as their careers progress — both because of biological reality and enduring (and, of course, in my mind healthy) societal values regarding motherhood. It would take even further collapse in male achievement and ever-rising female achievement — after this has gone on for decades — for the overall pay gap to be erased entirely.

So we can expect the raw pay gap – a statistical ratio of women earning less than men without controlling for occupation – to remain noticeable, though I hope the statistic has taken such a beating over the last couple days that it may lose its political potency.