An Economic View of The Wage Gap

Economics
By
John R. Brock, Ph.D., Vice President

When interpreting economic statistics, it is important to be careful and thorough.  For example, consider the work of Professor Claudia Goldin, the first woman to receive tenure in the Harvard University economics department.  She has devoted her research to developing a better understanding of wage differences in the labor market.  In a sidebar a few years ago, I discussed Goldin’s now-classic 2008 book, The Race between Education and Technology, in which she and co-author Lawrence Katz reported that a slowdown in the pace of educational attainment in the United States, which began around 1980, sharply increased the returns provided by education and consequently caused income differences to rise.

More recently, Goldin turned her attention to the earnings gap between female and male workers.  She found that the smallest wage gaps appear within technology, science, and health occupational groupings.  Why do some occupations have larger gender gaps than others?  Goldin found that in some occupations people earn a large, disproportionate premium for working long and continuous hours, with relatively high penalties for not working sufficient hours per week or not doing such things as regularly attending meetings or traveling to visit clients.  These things may be particularly difficult for working women, who often provide more child care.  Goldin discovered that occupations in the corporate and financial sectors are skewed toward characteristics requiring employees to be present for work regularly and continuously.  However, in other occupations there is little or no wage penalty for being a part-time worker.  For example, in science and technology jobs, people work more independently with less boss and colleague face time.  In these occupations, lower wages resulting from part-time or interrupted work are substantially less common than in the finance, corporate, and legal positions where gender wage gaps are the greatest.  Goldin concluded that occupa­tions with the largest gender gaps are those with the least time flexibility, where employees tend to work in teams complementing each other rather than substi­tuting for one another.

Professor Goldin further noted that workers can be good substitutes for each other in some high-income professions, citing a memo received from her ophthal­mologist, after Goldin had a minor procedure, which essentially said, “You will probably never see me again, because there are 20 other professionals in my group who can take care of you.”  For similar reasons, pharmacy, a relatively high-income occupation, has one of the lowest gender wage gaps.  While Goldin’s data set limited this analysis to occupations with annual salaries above about $60,000, in separate research on the lower part of the income distribution, where most workers are paid on an hourly basis, Goldin found that women earn less than men mainly because they work fewer hours, and those who work fewer hours often earn less on an hourly basis.  Although the overall gender wage gap has narrowed somewhat in recent decades, Professor Goldin’s research highlights the ways in which hours worked and the degree of wage flexibility in working arrangements may contribute to the persistence of the gap.