The Impossibility of a Gender Wage Gap

Sometimes friends and acquaintances say things that take you by surprise - and make you subconsciously plan a blog post. It doesn't have to by anything remarkable, just enough to set my guts on fire.

This recently happened to me, when a good friend of mine offhandedly mentioned the wage gap. My first reaction was one of genuine surprise, tantamount to when rational people around me profess strong association with party politics or the Jehovas Witness; "what?! Come on, you're smarter than this! You don't seriously believe in a gender pay gap?"

But she did. And I guess it's chocking to me that people even mention it, because its existence is so self-evident for my leftie friends as to make talking about it superfluous, and trivial and irrelevant for my libertarian friends. Below is feeble attempt of explaining how impossible it is. I'll do this in two ways: firstly to theoretically to show how it's incompatible with the profit motive, secondly to comment on the empirical data.

1) The Gender pay gap is inconsistent with the profit motive
This is a trivially easy point, often hidden away in the slogan "Equal pay for equal work" (My emphasis; see the second point). If you believe that women are doing the same work as men, but are simply paid less, you're put in the awkward position either to deny the profit motives of all businesses - or to explain why there are any men employed at all. A simple example will suffice.

Let's say Woman A & B and Man C are equally smart, equally productive and employed to do the same things etc, and let's say that gender stereotypes and societal structures have made their different employers pay Man C $100 while paying woman A and woman B only $77. Then, a profit-motivated employer entering the scene could easily fire (or simply refrain from hire) Man C, and instead hire Woman B from her initial employer business for much lower - say above $77, since Woman B would need some encouragement in order to change jobs. Say the profit-motivated employer pay Woman B $78 rather than hiring the man for $100 - saving 22% in the process (assuming only one employee). That's a huge saving in our highly competitive and globalized markets - are you really telling me that business, out of historical stereotyping or neglect or ignorance would let this one go? And the process would hardly stop there, because the next employer could repeat the process at $79, and $80, and $81 - all the way up to $100.

Since labour costs are significant expenses for most businesses, it is simply inconceivable for profit-motivated entrepreneurs to discriminate against women, provided they contribute the same work as the man. And the competitive process would quickly make men unemployed, while bidding up the wages of women until this alleged gap disappeared.

Or as the always-sassy Milo explains in a post just now:

The thing is, companies don't care who you are, they care about what your value is. Because the free market runs on money, not blog posts and hugs. 

Or, in more antagonising terms, Milo-style:

The earnings gap exists because men are more likely to do things that provide high value to their employer. Want to turn that around? Get up off your asses, ladies, and work as hard as we do. 

2) Empirics: if impossible, how do we account for the infamous 77c on the dollar?
Faulty studies, mostly. What the most extreme studies do is comparing the entire group of women to the entire group of men - ignoring the fact that women work less total hours than men, in different professions and often with very different flexibility; off-shore oil-drilling tend to pay more than teaching at kindergarden, and not for reasons of discrimination.

When more serious researchers account for these factors, the correct gender wage gap is something like a few cents - most likely explained by flexibility in regards to child-rearing, according to the literature consensus. Unfair, perhaps, and terrible that women seem to take a greater social responsibility for children - but hardly a fault of economics or discrimination in business by unscrupulous employers. Besides, as the stronghold of evil right-wing propaganda The Guardian reported last year:

Women in their 20s have reversed the gender pay gap, but their earning power is still overtaken by men later in life. Figures compiled by the Press Association have shown that between the ages of 22 and 29, a woman will typically earn £1,111 more per annum than her male counterparts.

And why should we be surprised? Girls' educational results have outperformed boys' for some decades, and these high-achieving smarter girls will eventually grow up, earn money - and "reverse the pay gap". Of course, they never really reversed something that wasn't there in the first place, they simply illustrated the statistical illusion by turning it on its head.

Another piece of evidence that should make people question the gender pay gap is provided by Mark Perry's analysis of the White House; the Obama Administration apparently suffers from a 16% gender wage gap despite loudly professing that "women deserve equal pay for equal work". Problem is, women aren't doing the "equal work" part - not even in the White House.

Overall, it's incredible to me that people still believe this illusion - and a massive credit to the marketing achievement of the left, having systematically convinced large portions of the population of such naive beliefs.

I really expect more from my friends, especially the smart ones, and hope that my tiny words can shed some light on the topic.