The Economics of Pay Differences Wendy A. Stock, Ph.D. Professor and Department Head Department of Agricultural Economics and Economics Why Do Men Earn

The Economics of Pay Differences

Wendy A. Stock, Ph.D.

Professor and Department HeadDepartment of Agricultural Economics and

Economics

Why Do Men Earn More than Women?

Outline

Race, Gender, & Ethnicity in the Work

Force

Pay Gaps Among People

Discrimination

Antidiscrimination Policy

Race, Gender, & Ethnicity

Pay Gaps DiscriminationAntidiscrimination

Policy

White90%

Other10%

1962

White81%

Black12%

Asian5%

Other2%

2012

White73%

Black14%

Asian8%

Other5%

2050

Race, Gender, and Ethnicity in the Work Force

Sources: U.S. Department of Labor, “Labor Force Characteristics by Race and Ethnicity, 2010” August 2011; Toossi, M. “A new look at long-term labor force projections to 2050,” Monthly Labor Review, November 2006; Pew Hispanic Center, “Hispanics: People in Motion,” 2005.



Policy

Males64%

Fe-males36%

1962


Males53%

Fe-males47%

2012

Males53%

Fe-males47%

2050




Policy

Non-Hispanic94%

Hispanic6%

1980

Non-His-

panic86%

His-panic14%

2012

Non-His-

panic76%

His-panic24%

2050



Pay Gaps & Earnings Ratios



Policy

Women earn 77.4 cents

for every dollar men earn

National Committee on Pay Equity

June 2012Pay gap persists for African-AmericansCNN Money

July 2010

Latino wage gap larger in Texas than

rest of U.S.Houston Chronicle June 2009




Policy

An earnings ratio measures the earnings of one group as a fraction of the earnings of

another group

A pay gap is the percent difference in earnings between two groups



Policy

White Female

Hispanic Male

Hispanic Female

Black Male

Black Female

Asian Male

Asian Female

-80 -70 -60 -50 -40 -30 -20 -10 0 10

-24

-55

-73

-35

-54

7

-22

Pay Gaps Relative to White Males, 2011

Percent Difference from White Male EarningsSource: BLS Current Population Survey Data. Includes ages 16+ employed full-time wage and salary workers across all industries and all occupations., excluding incorporated self-employed. Hispanic male and fe-male values are computed for any race. White, Black, and Asian values are computed for any ethnicity.




Policy

White Male

White Female

Hispanic Male

Hispanic Female

Black Male

Black Female

Asian Male

Asian Female

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10

Earnings Ratios Relative to White Males, 2011

Proportion of White Male EarningsSource: BLS Current Population Survey Data. Includes ages 16+ employed full-time wage and salary workers across all industries and all occupations., excluding incorporated self-employed. Hispanic male and fe-male values are computed for any race. White, Black, and Asian values are computed for any ethnicity.




Policy

Why Are There Pay Gaps?

Productivity-related Characteristics

Job Differences

Other Factors



Policy

Job Differences

Men

Women

White

Black

Asian

Hispanic

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Management & Professional Service Sales & Office Construction & Maintenance Production & Transportation

Percent of Group in Each OccupationSource: Author’s chart based on U.S. Department of Labor, “Labor Force Characteristics by Race and Ethnicity, 2010” Report 1032, August 2011.



Policy

Productivity-related Characteristics

Less than High School Diploma

High School Graduate, no college

Some College or Associate Degree

Bachelor's Degree or higher

0 10 20 30 40 50 60 70

Hispanic Asian Black White

Percent of Demographic GroupEducational attainment differs among various race and ethnic groups. Over 60 % of Asians over age 25 who are in the labor force hold a Bachelor's degree or higher; less than 20% of Hispanics with the same characteristics hold a Bachelor's degree or higher. Source: Author's calculations based on 2011 BLS data for people age 25 or older in the civilian labor force .



Policy

Important to control for observable job and productivity-related differences

between groups when interpreting pay gap data.

Pay Gaps



Policy

Other Sources of Pay Gaps

Female-Male Black-White Hispanic-non-Hispanic 0%

10%20%30%40%50%60%70%80%90%

100%

Percent of Pay Gap Due to Observable and Unobservable Factors

Due to Observable Differences Due to Other Factors

Per

cen

t o

f P

ay G

ap

Observable differences include age, education, marital status (for Hispanic comparison only), and region and occupation (for gender and race comparisons only) Sources: Altonji and Blank (1999) “Race and Gender in the Labor Market,” in Ashenfelter and Card, eds. Handbook of Labor Economics, vol. 3C for race and sex comparisons. Kerr, Orrenius, and Zavodly (2010) “Texas’ Latino Pay Gaps: Taking a Closer Look” SouthwestEconomy, Federal Reserve Bank of Dallas. Data for Hispanic-non-Hispanic gap are calculated within Texas only.



Policy

differential treatment based on arbitrary characteristic

Discrimination



Policy

Types of Discrimination

Taste-based discrimination when people have preferences

not to work with, hire, or buy from the discriminated group

Statistical discrimination when people use information about

the average characteristics of a group to make decisions about an individual member of that group



Policy

Education Discrimination

Plessy v. Ferguson 1896

Brown v. Board of Education 1954

Elizabeth Eckford attempting to enter Little Rock High Central School through a crowd of angry white students, 1957

Persistent School Quality Differences

School quality Resources: Eric Hanushek at Stanford’s Hoover Institution: http://hanushek.stanford.edu/publications/economics-school-quality-0 Boozer, Krueger, Wolkon (1992) “Race and School Quality Since Brown vs. Board of Education,” NBER working Paper 4109: http://www.nber.org/papers/w4109

http://hanushek.stanford.edu/publications/economics-school-quality-0



http://www.nber.org/papers/w4109



Housing Discrimination



Policy

Housing discrimination’s new main

target? The disabled

Medill Reports Chicago

(Northwestern University)

May 2012

Pacifist Boston Landlady Refuses

Apartment to National Guardsman

Digital Journal June 2012

Bridgeport housing discrimination

suit settledChicago Tribune

June 2012

http://articles.chicagotribune.com/2012-06-01/business/chi-bridgeport-discrimination-suit-20120601_1_prudential-rubloff-properties-daniel-and-adrienne-sabbia-willborns

Boston: http://www.digitaljournal.com/article/326074#ixzz1wvwhFjlA Disabled housing discrimination: http://news.medill.northwestern.edu/chicago/news.aspx?id=206162

http://www.digitaljournal.com/article/326074

http://www.digitaljournal.com/article/326074



Policy

Lending Discrimination

Pope, Devin G., and Justin R. Sydnor. 2011. “What’s in a Picture? Evidence of Discrimination from Prosper.com.” Journal of Human Resources 46(1): 53–92.

Mortgage Lending Discrimination: http://www.dollarsandsense.org/archives/2010/1110campen.html

Racial Disparities in Peer-

to-Peer Lending

Loan listings with blacks in the

attached picture are 25 to 35

percent less likely to receive

funding than those of whites

with similar credit profiles.



Policy

• equally productive workers treated differently

• workers not equally productive treated the same

Labor Market Discrimination



Policy

Employer Discrimination

when employers base their employment decisions on prejudice against certain workers

Darity, W. A., and Mason, P. L. (1998) “Evidence on Discrimination in Employment: Codes of Color, Codes of Gender,” Journal of Economic Perspectives, 12(2):63-90. Presents an overview of the economic research on race and gender discrimination in the labor market



Policy

Customer Discrimination

when customers have base their purchasing decisions on the race, sex, or other demographic

characteristics of the workers with whom they interact



Policy

Statistical Discrimination

using information about the average characteristics of a group to judge an individual member of that group




Policy

1964 Civil Rights Act first federal legislation to prohibit

employment discrimination




Policy

Affirmative action

policies that mandate taking action to ensure the equal treatment of people regardless of their race, creed, color, or

national origin.

http://www.balancedpolitics.org/affirmative_action.htm




Policy

Americans with Disabilities Act

Age Discrimination in Employment Act

Antidiscrimination Policy Effects



Policy

1967 1972 1977 1982 1987 1992 1997 2002 20070.60

0.70

0.80

0.90

1.00

Black/White Earnings Ratios

Year

Bla

ck

/Wh

ite

Me

dia

n E

arn

ing

s

If laws prohibiting race discrimination are effective, black/white earnings ratios should increase after the laws are passed, ceteris paribus. The black/white earnings ratios increased after the mid-1960s, particularly for women. The black/white earnings ratios for men have remained fairly steady since the mid-1990s, but they declined slightly for women after the 1970s. Source: Author's computations based on U.S. Census Data. Includes median earnings of full-time year round workers 15 years old and over beginning in 1980, and 14 years old and over for previous years. Before 1989 earnings are for civilian workers only.

Black Females/White Females

Black Males/White Males




Policy

1967 1972 1977 1982 1987 1992 1997 2002 20070.50

0.60

0.70

0.80

0.90

1.00

Female/Male Earnings Ratios

Year

Fe

ma

le/M

ale

Me

dia

n E

arn

ing

s

If laws prohibiting sex discrimination are effective, the female/male earnings ratios should increase after the laws are passed, ceteris paribus. The female/male earnings ratios for blacks increased after the mid-1960s, but have flattened or declined since the early 1990s. The female/male earnings ratios for whites have risen fairly steadily since the mid-1980s. Source: Author's computations based on U.S. Census Data. Includes median earnings of full-time year round workers 15 years old and over beginning in 1980 and 14 years old and over for previous years. Before 1989 earnings are for civilian workers only.

Black Females/Black Males

White Females/White Males




Policy

Research: age discrimination laws are associated with increased employment of older workers

Research: ADA is associated with lower levels of employment of disabled workers.

Discussion QuestionsIn their research paper, “Beauty, Productivity, and Discrimination: Lawyers’ Looks and Lucre,” [Journal of Labor Economics, 16(1) (January 1998):172-201] economists Jeff Biddle and Daniel Hamermesh examined the earnings and job placement of a large sample of lawyers. Their research data included objective ratings of the lawyers’ looks. The research found that better looking attorneys earned more than other lawyers. Why might better looking attorneys earn more?

In the early 1900s, many states passed legislation designed to “protect” women workers. In California, for example, a 1916 law prohibits women from employment in jobs that involve lifting “any excessive burden”, cleaning moving machinery, employment in work environments that are not sufficiently lighted, ventilated, or sanitary, messenger service, bell boy, trucking, gas/electric meter reader, taxi cab driver, elevator operator, guard on streets or subways, work in pool hall/bowling alley, delivery service, or “employing women under any conditions detrimental to their health or welfare.” How would these protective laws affect the employment and wages of women and men workers?

Discussion Questions

Other Sources for Discussion

The Economics of Pay Differences

Wendy A. Stock, Ph.D.

Professor and Department HeadDepartment of Agricultural Economics and

Economics

Why Do Men Earn More than Women?

Documents

The Economics of Pay Differences Wendy A. Stock, Ph.D. Professor and Department Head Department of Agricultural Economics and Economics Why Do Men Earn