It’s deceptively easy to calculate how much—or how little—women in the United States earn relative to men. “You take everyone who’s working 35 or more hours a week for the full year, find the median for women, find the median for men, and divide,” says Lee professor of economics Claudia Goldin, explaining how to arrive at the ratio repeated by public officials: 78 cents to the dollar. “It’s very simple.”
“It answers a particular question,” she says, “but it doesn’t say that men and women are doing the same thing. It doesn’t say that they’re working the same amount of time, the same hours during the day, or the same days of the week.” The rhetoric of politicians, and policy prescriptions meant to close the gender wage gap, assume that pay disparities are created primarily by outright discrimination by employers, or by women’s lack of negotiation skills. Goldin has a less popular idea: that the pay gap arises not because men and women are paid differently for the same work, but because the labor market incentivizes them to work differently.
Consider a couple graduating together from a prestigious law school, and taking highly paid jobs at firms that demand long hours. The evidence suggests they’re likely to begin at similar salaries. But a few years later, Goldin says, one of them—more likely the woman—may decide to leave for a smaller practice with fewer hours and more flexibility in scheduling. In that new job, research suggests, she’s likely to earn less per hour than her partner. Goldin calls this phenomenon non-linearity, or a part-time penalty: the part-timer works half the time her partner does, but earns less than half his salary.
It isn’t clear, she says, why firms compensate on a non-linear scale in the first place. “Why would anyone pay for that?” she asks. Apart from scenarios in which a client might want a lawyer available at all hours, day or night—during a merger or acquisition, say—and must offer a hefty premium for that unrestricted access, she says, “It’s a question I don’t have a particularly good answer to.”
Non-linear compensation prevails in the corporate sector, finance, and law, where employees are incentivized to work double or triple a traditional full-time schedule, because their time is better compensated per hour when they work longer hours. That compensation structure makes it more lucrative for one partner to work 80 hours and the other not to work at all than for both of them to work 40 hours each. If both partners opt for 40-hour weeks so they can share responsibilities at home, Goldin says, “lots of money is going to be left on the table,” which is why she believes so many couples don’t.
Non-linearity helps explain why most of the gender pay gap occurs within professions, Goldin adds. The distribution of men and women in different occupations accounts for only 15 percent of the gap, and the remaining 85 percent arises within occupations. (For college graduates, those numbers are 35 percent and 65 percent, respectively.) In science and health professions, though, workers are more likely to be compensated at a constant rate for additional time worked, and the ratio of women’s earnings to men’s is higher—about .892. For occupations in business and finance, the ratio is .787, and for lawyers, .815, closer to the national gender wage gap.
Chosen excerpts by Job Market Monitor. Read the whole story at Harvard economist Claudia Goldin examines the gender wage gap | Harvard Magazine