More pay gaps

My colleague Andrea Menclova responds to some of the recent foofarah about the latest data on the male-female wage gap in New Zealand. From her email:

The New Zealand Herald has recently reported that the New Zealand gender pay gap has increased in the year to September by 1.3 percent (from 12.85 to 14.18 percent) and that it is the largest it has been in a decade. These figures are based on the latest Statistics New Zealand Quarterly Employment Survey and have lead to considerable dissatisfaction for some. Angela McLeod, spokesman of the Pay Equity Challenge Coalition, said for the Herald that "The best [the gap] has ever been using the measurements we use is 12 per cent. It's still a gap and it's still unacceptable." And Lucy Johnston from the University of Canterbury told Scoop that “active intervention is needed to address these inequalities”

Why?! Gender pay gaps arise for a number of reasons and only some may be worrying. Unless we know the reasons for a pay gap, we can’t conclude anything about its desirability. See the famous Oaxaca decomposition and the ton of research that has been done on the topic. For example, women often choose part-time employment as it suits their personal lives (they may prefer part-time employment to no employment but would prefer no employment to a full-time job). It honestly frightens me when people draw angry conclusions from raw numbers. Angela MacLeod admitted the Coalition was not sure of reasons for the pay gap change but said “a higher proportion of women in part-time work had not helped”. Helped whom? Helped what? Help us someone! Help us write better commentaries on such issues.

I agree entirely. In particular, it is nonsense to compare average wages without correcting for education, time outside the workforce, industry, or full-time and part-time status. The QES's tables only give a gender breakdown for average hourly wages, though I'm sure Stats NZ could provide more detailed gender cross-tabs on request. Part-time workers typically earn less per hour than full-time workers; if more women than men take on part-time arrangements voluntarily, and we don't correct for that, we overstate the gap. Same for correction for industry and the like.

The New Zealand Income Survey gives us a somewhat different picture - again, only comparing raw figures. For the June 2012 quarter, average female hourly earnings from wages and salaries were $23.35 to the $26.75 earned by men: men earned 14% more on average. But if we look at median hourly earnings, the gap is only 10%: $22 for men compared to $19.95 for women. And, better, the NZ Income Survey lets us compare full time and part time earnings. Again, the raw gaps above were 14% in averages and 10% in medians. If we compare full-time workers, men earn (median) $23 per hour to the $21.58 earned by women: a 6% gap. Comparing part-time workers, men earn $15.50 per hour and women earn $16.25 per hour. So, in the Income Survey, you can abolish almost half of the wage gap by considering only full-time workers, and reverse the darned thing if you look at part-time workers.

Table 11 of the last NZ Income Survey is awfully telling. Where twelve percent of men work part-time, thirty-five percent of women do. Cohort differences in the choice to work full or part time drive the bulk of the observed wage gap. And it would be surprising if correction for industry, work experience, time outside of the workforce, and education didn't wipe out most of the rest.

Professor Johnson, in the Scoop press release, cites other research:

Research, including some conducted by Professor Johnston, has shown the continued existence of such stereotypes and the impact they have on recruitment and promotion processes - often without the awareness, or explicit endorsement, of the evaluators.

Women were evaluated less positively than men with identical qualifications and experience when applying for jobs typically filled by men, such as management positions. Women are more likely to be successful in such applications if they dress and talk in a more masculine way – wearing a suit rather than a dress and having a deeper voice, she said.

``Role models and encouragement are essential for young women and we must make every effort to promote and endorse successful women and we must ensure that to become successful women do not need to become `like men’.

It's true that in audit studies, we can find employers who discriminate. But, in equilibrium, it's not likely that they drive aggregate wage differences. There's also evidence that women are less aggressive in salary negotiations than are men, which also contributes to wage gaps. But is that really discrimination?

Finally, suppose that you ran all the regressions and controlled for all the human capital characteristics and still found on wage decomposition that young women earned less than comparable men. There's still something for which you haven't corrected: an employer hiring a young woman faces greater risk that his employee will take 3-12 months of leave. Sure, maternity leave is paid for by the government rather than by the employer, but the employer still bears costs in accommodating the leave.

There will be more here sometime in the next few months on maternity risk and wage gaps. Stay tuned.