Bias and a possible gender pay gap?

The media this morning is awash with breathless reports of a new study (and slides on the main results here), conducted for the Ministry for Women, on the differences between hourly earnings for men and women.  Not a hint of scepticism has been reported in what I’ve seen and heard, even from the Deputy Prime Minister in our ostensibly centre-right market-oriented government.  On principle, one should probably always be more sceptical of research results that confirm the preferences and priors of the agencies commissioning such research.

It isn’t my area of speciality at all, so this is just a brief note.  To the extent I have a dog in the fight, on the one hand I tend to believe that markets work pretty well most of the time, which makes me instinctively suspicious of the notion of “free lunches” or that somehow huge systematic effects result from conscious or unconscious bias or discrimination.  And on the other hand, I’m not in paid employment myself, while my wife is, and I have more daughters than sons.    If there was a material real gap, it wouldn’t be against our family interest to recognise it.

The authors use a fairly large sample of people, and look at quite a range of variables.  But, having read some summary articles on this issue from the US literature, I was quite struck by what appeared to be missing.  I couldn’t, for example, see any sign of a “time out of the workforce” variable.  I think there is huge value in one parent being at home, especially when children are young, but it isn’t necessarily experience that has a huge value back in the paid workforce (different skills, different roles).   Someone –  male or female, but most are women –  who takes five years out of the workforce to look after their young children is likely to set back their income-earning prospects back in the paid workforce, for any given set of qualifications, or even any particular type of job.   And, as far as I could see, the only proxy for input/effort (and thus, accumulated skill/expertise)  was a distinction between part-time work and full-time work, at a 30 hours a week cut-off.     For some jobs, that might be a perfectly reasonable marker,  but there is a big difference between, say, a lawyer working 32 hours a week and one working 60 hours a week.  More women are more likely to select for working relatively fewer hours, to prioritise family, and this study –  data-rich as it is –  doesn’t seem likely to be able to distinguish that point.

Are there pointers in the paper to these sorts of factors being part of the explanation?  Well, yes, there is, here in this chart.

gender pay gap

Note that there is no statistically significant difference in gender pay for the first three deciles, (and if anything the unexplained component goes the other way –  the purple line is above the “gap” line).  That appears to run contrary to, for example, one of the Ministry for Women’s other “causes” –  eg pay differences between rest home workers and other ostensibly similar occupations.    The big difference show up in the upper part of the income range, where the personal characteristics of the individual employee are likely to be both much more important (than for relatively homogeneous positions at the bottom of the income scale) and much harder for researchers in studies like this to observe.

If such large differences, for people with exactly the same characteristics, existed, it points in the direction of large “free lunches”.  Relatively “enlightened”, or unbiased employers, could profit hugely by replacing expensive male employees with cheap females ones, in relatively senior positions.  Perhaps it was to some extent true 100 years ago, when cultural expectations –  among men and women –  were quite different.  It defies belief now.

UPDATE: In some exchanges in the comments, not only did it became apparent that the AUT researchers had not even cited the leading work in this field, by Claudia Goldin at Harvard, but that the Ministry for Women policy staff, while aware of that work, do not refer to it.   Here is a link to an accessible discussion with Goldin  and an extract from that interview

DUBNER: Talk for a moment about potential categorical differences between men and women that have shown up in some research.  The different appetite for competition, as some have labeled it. Or, in another instance, the willingness to bargain on salary or flexibility.  How much might those contribute to the pay gap?

GOLDIN: I think there’s no doubt that they contribute to some degree. But let me tell you why I don’t think that they go the real distance. Some of the best studies that we have of the gender pay gap, following individuals longitudinally, show that when they show up right out of college, or out of law school, or after they get their M.B.A. — all the studies that we have indicate that wages are pretty similar then. So if men were better bargainers, they would have been better right then. And it doesn’t look as if they’re better bargainers to a degree that shows up as a very large number.  But further down the pike in their lives, by 10-15 years out, we see very large differences in their pay. But we also see large differences in where they are, in their job titles, and a lot of that occurs a year or two after a kid is born, and it occurs for women and not for men. If anything, men tend to work somewhat harder. And I know that there are many who have done many experiments on the fact that women don’t necessarily like competition as much as men do — they value temporal flexibility, men value income growth — that there are various differences. But in terms of bargaining and competition it doesn’t look like it’s showing up that much at the very beginning.

DUBNER: Let me ask you about one more contributory factor. The parent penalty, what’s often called the mommy tax. How significant is that as a contributory factor?

GOLDIN: Well, it seems as if it’s a very large factor.  That anything that leads you to want to have more time is going to be a large factor.