Why Is There a Gender Pay Gap?

By Kevin Cochrane

Friday, May 20, 2016

"77 cents for every dollar!"

The notion that women earn 77 cents for every dollar that goes to men has become the rallying cry of women's groups, websites far and wide, and the mainstream media. Even the president repeats this statistical artifact in speeches excoriating the purported "gender pay gap." There's just one problem with it—it's dead wrong.

Yes, there is a way to run some numbers and come up with the "77 cents" result. Taking the average pay of all full-time employed women and comparing to the average pay of all full-time employed men yields a ratio of roughly 77 cents to the dollar. But this calculation is not just simplistic and misleading in its approach: It also masks the real cause of the pay disparity.

Believers in the gender wage gap often voice the common argument that women are punished for giving birth and discriminated against in the workforce because of the belief they are more interested in the "mommy track" than the "career track." But if we look closer at the numbers, it turns out that's just not true. The pay disparity is mostly about college major and career choice, not family size.

Overwhelmingly, women choose careers that produce low revenue product, and workers (men or women) are compensated relative to the value of their revenue product. We may disagree about the social worth of one career compared to another, but the realities of labor supply and demand in various markets, and the dollar value of workers' production, dictate what people earn. Gender doesn't have a thing to do with it.

Data compiled by the Department of Education show exactly where the purported gender pay gap begins. If we examine just a few college majors and their resulting careers, the gender contrast is glaringly obvious. At the bachelor's degree level, 21 percent of men compared to just 10 percent of women major in subjects like business and finance, while more than 21 percent of women major in subjects like elementary education and sociology, compared to only 3 percent of men. Meanwhile, almost 6 percent of male undergraduates pursue degrees in engineering and computer science fields, while less than ½ percent of women graduate in these majors.

While we all probably agree that good teachers are needed, they don't produce an easily measured revenue product compared to an accountant, or structural engineer. According to the National Association of Colleges and Employers, the starting average pay for an elementary school teacher with a bachelor's degree is about $36,000, while finance graduates earn $49,000, and engineers $64,000 respectively. Statistically, women choose lower paying majors than men – and this is in spite of a significant effort to increase female enrollment in STEM (Science, Technology, Engineering, Math) fields.

Since 1996, women have surpassed the number of men graduating with bachelor's degrees, and this trend has continued to increase. However, in spite of the number of available STEM jobs growing significantly during the past decade, enrollment by women in these areas has actually declined by about ten percent. The gender wage gaps in fields like engineering and computer science are significantly narrower than 77 cents to the dollar – and when adjusting for years of experience the gaps completely disappear!

Explaining the gender wage gap by comparing gross average income numbers and then yelling discrimination isn't the right approach. The real question is women freely choose lower paying careers over higher ones.