Sunday, August 14, 2016

Gender Pay Equality

I’ve been reading, for decades now, about the gender pay gap. That women earn less for doing the same job. I remember hearing this the first time at a Laurie Anderson concert in 1991. It turns out that it’s true - if you calculate the average salary of a man it is greater than the average salary of a woman. However, what many of these sources don’t mention is that once you account for a laundry list of factors. Things like 1) career choice, 2) hours worked, 3) level of education, 4) amount of experience, etc. then that gap narrows to (depending on the study) between 0% and 9% - most have it around 3%. This essay isn’t intended to be a refutation of the wage gap myth. If you’re interested, and I hope you are, I recommend reading Dr. Warren Farrell’s Why Men Earn More.

Instead, what’s always interested me is why this myth has survived for over five decades, and shows no sign of dying. In addition to the numerous studies there’s also common sense questions one could ask, like:

  1. Why would companies risk violating numerous laws which make it illegal to underpay women?
  2. If companies could underpay equally productive women why even hire men? - that’s a HUGE cost savings.
  3. If women in their 20’s and 30’s out-earn men, why does that change once women start having children?

So here’s my theory - I think it comes down to two things…

The first is that many people buy into these myths because it comes from a seemingly reputable source. We believe it without examining the facts. I believe politicians and businesses exploit this myth, and our laziness for their own gain. I don’t intend to dwell on this hypothesis in this essay.

Recently I’ve come to realize that there’s a second reason. When I saw President Obama giving a speech about pay discrimination towards women I was quite surprised. Is he unaware of any of these studies? The first one was done by the US Dept. of Labor in 1973? Is he just pandering to the female vote? What gives?

Then I read the US Congress’ report titled Gender Pay Inequality. It lists factors like a women's greater propensity to:

  1. Take time off to care for children or other family members.
  2. Work part-time.
  3. Study in lower paying fields.
  4. Work occupations that pay less.
  5. Not be leaders.

But these are all choices right? Then it hit me - it seems that women want the freedom to make these choices and have pay equality.

I’m going to dive in and examine only the first item on the above list: women’s (so called) unpaid labor. What would it look like if society paid women for this work? I’m going to run a very crude simulation as a thought experiment. In this simulation the worker:

  1. Works for six years.
  2. Takes a six year break.
  3. After the break returns at their original salary.
  4. Gets a 2% raise each year (when working).
  5. Has a 42 year long working career.

Here’s a plot of men (no-break) vs. woman (break) annual daily wages:
So lifetime earnings would look like this:


Higher incomes come with progressively higher taxes. Here’s a fictitious progressive tax rate topping out at 35% for $70K pre-tax net income:
Annual Tax.png
Using this to estimate taxes paid by gender, we have this post-tax salary:
The lifetime taxes paid has a shape similar to the earnings plot:
We can see that because men don’t take time off from work, they reach the higher tax bracket six years earlier. Once taxes are taken into consideration the lifetime earnings gap drops from 78.8% to 80.3%. However, because of the progressive tax scale women paid 74.9% for every $1 in taxes paid by a man, even though her post-tax income 80.3% as her male counterpart. I’m not arguing that this is unfair, only that the benefits of higher income aren’t quite as they seem until all factors are taken into consideration.

Achieving Pay Equality (Paying for Unpaid Labor)

So how do we achieve pay equality when the mother isn’t working at a company, but is instead at home caring for children? One solution is to pay women for this gap. What would that look like? In this scenario the government, or possibly the company, would continue to pay them their salary. Something like:
However, workers that remain continue to improve and increase their value to the company, and consequently get raises. This accrues over lifetime income:
In this scenario women made (after taxes) 80.3% of men when unaid for that six year break. When paid for that break the earnings gap dropped by just over half to 91.2% - but it didn’t go away. The only way to eliminate the earnings gap caused by an absence is to continue to give raises as though the break was never taken. This presents a variety of questions:

  1. Why should the company pay somebody to not work? For that matter how could a company afford to do so?
  2. Why should the company give raises for somebody that not only isn’t gaining skills, but is likely losing skills?
  3. Is this fair to the other workers that do not take a break?
  4. How can a company compete internationally with companies in other countries that do not impose these laws?
  5. Do women earn an average caretaker salary, or is it based on their pre-break salary?

But where does the money come from?

There is only one answer: it comes from workers (men and women) that do not take time off to care for children and family. Because these breaks can easily become several years long (or more), it’s unrealistic to place this burden on companies, leaving only one real solution: the government. Yes, we could force husbands to pay their wives, but since many children are raised by single parents the only real solution is the government - i.e. taxes.

In this scenario the government pays the worker's salary during break, which includes raises. The company is then obligated to rehire that employee at the new higher salary, as though they were never absent. This is a big chunk of cash, so taxes will need to be raised. Let’s raise taxes by 50%:

Annual Tax_150.png
This isn’t very progressive, and it only narrows the post-tax lifetime earnings gap to 92.9%. In order to fix this we need a more progressive tax scale:

Annual Tax_Progressive.png
With this progressive tax rate, which maxes out at 80%, we can finally achieve the desired goal of lifetime gender pay equality:
With the salary curve looking like this:
You can see the progressively larger drops in salary as seniority goes up. There are just too many perverse incentives to this tax plan that I don’t see it as being anything close to workable.

A Man Tax

Another proposed solution is a tax levied only on men - AKA a “man tax”. This idea has been floated around for a while now. If men pay 23.8% more taxes than women, we’ll have this tax rate:
Annual Tax-Men.png
And the career lifetime salaries would be:
With lifetime total earnings at:
However, lifetime tax payments would be:
Which means that men pay 50% more taxes than women equating to 59.6% of taxes overall. This would likely disincentivize men from either working, or climbing the corporate ladder, having a negative overall effect on the economy.


In this thought experiment I pretended as though time off for child/family care was the only cause for the earnings gap. Given that women work less, take less risks, avoid dangerous jobs, pursue lower paying careers, and many other factors, I’m really at a loss as to how to solve this supposed problem. In all honesty I don’t really think there is a problem. People are free to make their own individual choices. Many of those choices result in higher or lower income, but that's fine, let the individual decide what s/he wants. The thought of putting government in this mix, and forcing companies to pay more for some jobs, pay for less hours, etc. seems frightening Orwellian, and will only serve to destroy our economy and the freedoms both men and women enjoy.

It sounds as though women are asking to be able to work less (and more flexible) hours in less valued careers while still be paid the same as others that work harder and longer. What I’d really like to hear is exactly what women (and men) are asking for here, and how do you expect to achieve it?

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