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September 23, 2011
The Gender Wage Gap: What Do The Numbers Show?

If you hear the words “men,” “women,” and “77 cents” in the same sentence, you know exactly where the conversation is headed: the gender pay gap. Conventional wisdom says that women earn just 77 cents for every dollar men earn. In fact, this statistic has been quoted recently by senior White House advisor Valerie Jarrett, Secretary of Labor Hilda Solis, and EEOC Chairman Stuart Ishimaru.

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On the surface, a 23-cent wage gap seems indisputable, says Stephanie Thomas, PhD, one of the leading experts in equal employment opportunity issues. But things are not always as they seem.

Thomas recently discussed the gender pay gap and the science behind the numbers in a webcast for her firm, Thomas Econometrics (www.thomasecon.com). She specializes in statistics and economics, and using those disciplines, has uncovered some interesting ideas on the traditional concepts of gender and pay. (She applies the same kind of processes in her recent book, Statistical Analysis of Adverse Impact: A Practitioner’s Guide, which analyzes the impacts of discrimination in hiring, firing and promotions).

You need more than raw data

The 23-cent figure is not an accurate depiction of the real gender pay gap, Thomas says. “It references the raw gender pay disparity and doesn’t consider the impact of legitimate, non-discriminatory factors like occupational choice, industry, work experience, hours worked, and the personal choices people make. When we consider those, the gender pay gap significantly narrows, and in fact there may be no gap at all.”

Just how do these factors explain the gap? Thomas explains:

Occupational choice. For a number of reasons, men and women often choose to work in different occupations. Women tend to enter fields like education and nursing, while men more typically go into heavy machinery, production, and materials moving, according to the Bureau of Labor Statistics (BLS). The differences have subsided significantly in last 30 years, says Thomas, but they do persist. Even when they are in the same occupational category, though, there is often a disparity in pay between men and women. For example, in the BLS’ legal category, it is alarming to learn that 2009 data shows women earning 56 cents for every dollar earned by men.

But a closer look tells more of the story. “There are four sub-categories within this group, as the BLS tracks it,” Thomas explains. “There are lawyers, judges, paralegals and legal assistants, and miscellaneous legal support occupations. Within the overall legal category, 77% of the men are lawyers and 87% of women fall into the paralegal and legal assistant sub-category. One would expect paralegals to earn less than lawyers. So the reason the broad occupational category appears to have a large gender wage gap is because of the distribution of men and women within each of the four subcategories. When you look within the lawyers sub-category, the ratio of male to female pay is closer to parity. The same is true within the paralegals/legal assistants category.”

Prior work experience. Thomas says that companies seldom keep an employee’s resume on hand, either in paper form or electronically, and that can complicate a comparison of men and women by prior work experience – an important factor in comparing pay. “There are two ways to measure prior work experience, actual or potential,” she says. “Actual uses the real information, which may not be easily accessible. Potential work experience uses a formula based on the person’s date of birth, today’s date, the date the person started school, and the estimated number of years of education.

“There are two problems with using potential work experience as a proxy for actual. First, it may not reflect relevant actual work experience. For example, if the employee went from being a lawyer to a kindergarten teacher, the experience as a lawyer is not relevant to the new job. Or, if he or she took time out to obtain additional education, the formula will calculate prior experience incorrectly. Using a formula tends to overstate the actual relevant work experience.

“The second problem with using potential work experience in a compensation model is that it can introduce an artificial gender bias,” Thomas continues. “Because women tend to experience greater periods of absence from the workforce, for childbearing and other care giving situations, relying on potential prior work experience can lead to distortions.

“Take for example two employees, one male, one female. Both are 35 years old, have the same job and identical educations. Both entered the workforce at 22 with the same degrees. The male currently earns $2,500 more per year than the female. On its face this appears to be gender discrimination. But the male has 13 years of actual prior relevant experience, and the female has 8 years. She gave birth to a child and was out of the workforce until the child was 5 years old.

“Potential work experience can’t account for the real gap in her work experience. The female has 5 fewer years of experience than the male, so it makes sense she earns less. Be aware of this if you’re using potential work experience as a proxy for actual; it can introduce a gender bias, making it look like you have gender discrimination.”

Other factors have an impact

Controlling for these factors significantly narrows the gap, but a gap does remain. Does that mean the difference is gender discrimination? Not necessarily, Thomas says. “Anytime we hear of a difference, the tendency is to assume that it’s attributable to gender discrimination. But the differential may be explained, at least in part, by choices individuals make.” Some of those choices are career interruptions, hours worked, the cash versus benefits tradeoff, willingness to engage in compensation negotiations, and pay expectations. She explains:

Career interruptions. Research shows the continuity of work experience plays an important role in an individual’s earnings. Taking leaves from the workforce is associated with reduced earnings, and such leaves happen more often among women – particularly mothers, Thomas reports.

Negotiation and compensation expectations. “There is a substantial difference in willingness to engage in negotiations by gender,” Thomas says. “Men are more willing than women to negotiate. The Obama Administration recognizes this, and has introduced a provision in the Paycheck Fairness Act to provide resources for negotiation training for women and girls. Women also tend to have lower compensation expectations than men. The real cost is hard to quantify, but it is likely these two things play a key role in the gender pay gap.”

Number of hours worked. “The majority of both genders regularly work 40 hours each week. But men tend to work over 40 hours a week more often than their female coworkers. One out of five men regularly work more than 40 hours, while one out of ten women do. More hours worked equals higher pay, especially considering overtime pay rates. Studies of the gender pay gap tend to look at earnings rather than pay rates – and that could distort the picture.”

Cash versus benefits tradeoff. “Benefits account for nearly 30% of total compensation, but most studies to date of the gender pay gap have ignored the role of benefits. At least one study has concluded that the gender pay gap is smaller when you use a measure of total compensation that includes benefits.”

While it’s true that numbers don’t lie, it is also true that you can’t always rely on what you see on the surface. Thomas says, “In 2009 the DOL commissioned a study on the gender wage gap, and the Deputy Assistant Secretary for the Office of Federal Contract Compliance Programs Charles James said, ‘This study leads to the unambiguous conclusion that the differences in compensation between men and women are the result of a multitude of factors, and that the raw wage gap should not be used as the basis to justify corrective action. Indeed, there may be nothing to correct.’ The differences in raw wages may be almost entirely the result of individual choices being made by both male and female workers.”

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