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Bob Higgs on the Myth of an Economically Unjustified Gap In the Pay of Men & Women

This Facebook post by my dear friend Bob Higgs is so good – so clear, so eloquent, so compelling – that I share it with you in full.  (Bob is here responding to this economically challenged essay in the Huffington Post.)

The quality of economic journalism in the USA is terrible. Day after day, journalists write about the causes and consequences of economic conditions and events without understanding the underlying economics of the situation, and their articles are, as a rule, simply bunk. Here is an example.

I have not examined the actual report whose findings are described in the article, but I am familiar with many such studies that economists have conducted over the years. I myself have made many applied econometric studies, and I know how delicate the findings of such studies are to a variety of details — sample period, sample size, sampling method, data collection details, model specification, estimation methods, and so forth. I know, too, that the best studies — those with the best data, most sensible model specification, and most exhaustive set of controls — have found virtually no difference in the amounts that men and women are paid for doing the same work. The key is “doing the same work,” which is another way of saying “providing equally valuable services to the employer” in the sense of adding equally to the employer’s net income.

In any event, even if one had never immersed himself in such econometric nitty-gritty, he would have excellent grounds for skepticism. First, to say that women earn less than men is not the same as saying that the same employers pay women less than equally value-productive men. Earnings reflect many choices by women who work as well as by employers who hire.

Simple example: suppose that there are only two employers. The first hires 10 men and 5 women, paying each employee a wage of $50 per hour; the second hires 5 men and 10 women, paying each employee a wage of $40 per hour. For all employees in this two-firm economy, men will earn an average of $46.67 per hour, and women will earn an average of $43.33 per hour. Yet there is no sex discrimination; by construction, every employer pays men and women exactly the same wage. If one employer pays a higher wage than the other, one may presume that the higher-paying employer is hiring employees with greater value-productivity.

If such were not the case, he’d be a very poor manager, because by paying, say, just $44.00 per hour, he could replace all of his current employees by hiring away those currently working for the lower-paying employer and save $2.67 per hour for each worker, or $40.05 per hour for his entire labor force, which would be a $40.05 contribution toward increasing his net income. Why would any employer forgo substantial additional net income simply to persist in sex discrimination (which, by the way, has been illegal since enactment of the Equal Pay Act of 1963)? And even if some employers tried to practice such discrimination, the employers who had no yen to sacrifice net income for the pleasure of discrimination would hire away his workers.

If sum, the so-called gender gap is almost certainly a myth, a persistent misapprehension kept alive by leftists who wish to use the power of government to benefit members of their political constituency. If employers truly discriminate between equally value-productive male and female employees, they do so only in cases that are few and transitory, because the systematic, persistent conduct of such discrimination is inconsistent with everything we know about how people make decisions in labor markets and about what we presume business owners in general are trying to do, namely, make profits.

UPDATE:  Over at The Beacon, Bob re-posted the above, but with some additions.