Home > Democratic Elections, Fiscal Policy, Labor Markets, Uncategorized > Equal Pay and Occupational Choice

Equal Pay and Occupational Choice

It is election season and the bombast is relentless about the so-called problems that politicians need to fix. Equal pay is one such issue. Hillary Clinton contends that, if she is elected President of the United States, she will work to ensure that women are paid equally to men. But the “evidence” that is often offered to support the existence of this problem is simply the incomes of men and women which I have argued in a previous blog post is worthless (that post is here). The reason is that income data must be adjusted for hours worked, occupations, and possibly other reasons to make the comparisons sensible. These adjustments are typically not made and so one wonders if there is really any problem to be solved.

Here I thought I would provide an example of occupational differences which I suspect is at the heart of measured pay differences. The Bureau of Labor Statistics (www.bls.gov) provides data on incomes by occupation. To illustrate the point that occupations matter in equal pay discussions, consider two occupations: chemical engineers and elementary and middle school teachers. BLS reports a mean (average) income for chemical engineers of $103,960 and teachers in elementary and middle schools is $58,060. Now consider the following table.

Teachers Engineers
Man $58,060 Man $103,960
Woman $58,060 Man $103,960
Woman $58,060 Woman $103,960
 Total Incomes
Men $265,980
Women $220,080

In the table, there are three people in each occupation. In engineering, there are two men and one woman and, in teaching, there are two women and one man. Note that within each occupation, each person makes exactly the same income so there is no evidence here about discrimination by employers. But men, in the aggregate, make 21 percent more than women ($265,980 is about 21 percent larger than $220,080). So while there is no discrimination by employers, there is a 21 percent aggregate income gap due to occupational differences between men and women.

The point of this example is that if one is to argue for gender bias, the evidence must involve the choices made by men and women, not just the wages paid by firms employing them. I doubt seriously that this would ever happen. What is more likely to happen is that another layer of bureaucratic oversight will be imposed, involving data that must be provided by the private sector to government searching for discrimination. That raises the supply price of the goods and services we buy, thus raising their prices.

I am willing to believe that discrimination exists in our society but I am not willing to believe it on the basis of worthless analysis.

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Economics One

A blog by John B. Taylor

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One economist's views on economic policy.

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