Opportunities for signalling


I couldn’t help but chuckle when this event popped up on my facebook. I realize some of you may not be indocrinated, so I’ll post the concise summary here:

Female University Graduates in Newfoundland and Labrador earn $0.68 to every $1 a Male University Graduate earns.
To raise awareness regarding this issue, a bake sale is being held at MUN in the Loft, third floor of the University Centre. At this bake sale, goodies will be sold for $1 to men and 68 cents to women. And the evil Gapzilla may be lurking around…

I can’t find the study to which they refer, but for the sake of argument I’ll grant them their figures. Economists have always found the existence of these differentials puzzling at first glance. If, for some reason, you’re unwilling to pay a portion of the population their true worth, then your competitors will scoop them up and run you out of business using their talents. Systematic discrimination isn’t a supportable theory without some sort of way for employers to form a cartel against a segment of the population, i.e. on grounds of religion or law – neither of which we’ve had for awhile.

There are, however, lots of more realistic theories than multinational conspiracies to explain this gap and why there’s no need to ‘fix’ it. I’ll link a recent (June 2007) government study, which points out that record numbers of females are going to university, but their wages haven’t shown any tendency to converge to that of the male graduate. The figure they use is that 60%-ish of graduates are female, just so you know.

My personal belief (which I like to think is supported by the data, I’m just hesitant to claim absolute proof in these things) is that it comes down to self-selection. If I correctly recall the engineering faculty at MUN, the students were predominately male, perhaps 4:1? Engineering is probably the best-paid undergraduate course of study at Memorial, ergo we would expect that the earnings gap partially stems from more males choosing engineering compared to their female counterparts. Maybe they, on average, tend to like it better. Maybe women don’t feel comfortable in the department – but that’s sociology, not economics, so I won’t go there. Feel free to go there in the comments, however.

One way to fix this discrepancy would be to force a bunch of female liberal arts majors into the engineering department or other monetarily lucrative choices. Happen to like French literature? Folkore? Too bad, here’s your soldering set and math texts. Deal with it. Anyone think this is a good solution? Anyone?

This is why economic models typically deal with utility, not money. There are more things to what makes a person happy than how fat their wallet is at the end of the month. If females place a higher value on leisure, or have preferences for less-lucrative majors because they’ll enjoy their careers more, these pay gaps are natural, a result of everyone doing what makes them happiest.

To return to the study, I’ll quote: “…university-educated women have lost ground to university-educated men. This is likely due to the fact that men and women continued to choose traditional disciplines during the 1990s, but only male-dominated disciplines saw improvements in average earnings.” Self-selection confirmed.

Okay, we have a second target for the conspiracy. Wages are rising much more in male-dominated professions. Well, if there are a lot more women graduating university than men, and each gender has different preferences over potential occupations, this is natural. Demand and supply. There’s a relative surplus of females crowding into the jobs that they prefer, which lowers the wages in those sectors, and the relative scarcity of labour in male-preferred careers drives up the wages needed to attract the necessary number of workers. The numbers in the paper say that about half the wage gap can be explained by the educational choices of females, and that’s before taking into this supply-and-demand mechanic.

This gets us 84 cents on the dollar as an absolute lower bound. If I wanted to try making a stab at explaining the rest, I’d put a few cents on the supply-demand as above, a couple more on maternity/anticipated pregnancies (employers hesitant to hire people they think will be on maternity leave for a long time, though with more dads staying with the kids, maybe this is changing; compensating government transfers may not show up in the data, either), a cent on the average higher ability for men to perform physical labour, a few more cents on the extreme tail of the distribution distorting the figures, e.g. business inheritances tend to go to sons, and on a related note, maybe Larry Summers for the last couple pennies?

Basically, the existence of the persistent wage gap between equally well-educated and capable members of disparate genders can be mostly attributed to the success of society at getting women into university relative to their male peers and the choices the two groups make once in university. I’m not saying the gap is 100% explained, but if you want to construct an argument based on evidence, you pretty much have to accept this as far and away the primary reason a pay gap exists.

P.S. If I was feeling particularly cynical today, I’d be tempted to suggest that this would be an excellent time for some males at MUN to develop a sweet tooth. A few cents extra on baked goods for the chance to ‘fight pay inequality’ in front of the female student body…?

P.P.S. The common statistical technique here is ‘Oaxaca decomposition’, feel free to google it if you’re so interested, but it doesn’t have a Wikipedia page…

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