Are all paychecks created equal?

Steven Horwitz Professor, St. Lawrence University
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April 17th is “Equal Pay Day,” which is designed to bring attention to the lingering gap between men’s and women’s earnings.

The message, which you’ll hear repeated over and over on the day’s cable news shows, is that the average woman earns approximately 75 to 80 percent of what the average man earns. Progressive women’s organizations use this talking point to support the argument that not only is gender discrimination rampant in labor markets, but that government has to step in and solve the problem.

Before rushing to legislate and regulate in the name of good intentions, we should step back and ask if there’s even a problem here. A closer look at the data suggests there isn’t one — at least, not one that government can solve.

First, it’s important to go beyond the talking points to understand what the “75 to 80 percent” pay gap number does not mean. It does not mean that a woman, say, doing the same job as a man with the identical qualifications will get paid 75 cents for every dollar he does. Rather, this figure reflects the average earnings difference between men and women, which makes it far less controversial than advocates would like you to believe.

When men and women pursue different kinds of jobs or choose to develop a different skill set, differences in pay will result. Wages depend critically on what economists term “human capital,” which is made up of workers’ education, skills and experience. The most important reason men and women have different earnings is not discrimination — it’s that their human capital differs.

Even as more women are going to college than men, the patterns of majors and experiences that women have in college differ from those of men. They tend to major in areas that lead to jobs that tend to pay less than men with a comparable number of years of education. For example, if women are more likely to go into teaching, nursing or education, they will make less than men who are more likely to go into engineering or computer science.

Women are also more likely to interrupt their careers to engage in household production, particularly raising children. Career interruptions often put those women at a disadvantage compared to men in their cohort. These human capital factors alone explain 50 percent or more of the gender earnings gap, according to some studies.

Economists hypothesize that the small portion of the gap not explained by human capital, compensating differentials and other economic factors is due to discrimination. And it might be true: Markets do not completely eliminate discrimination in pay by gender, after all. But that doesn’t mean government is the best way to solve the problem, since one-size-fits-all political solutions are far more likely to make matters worse than better.

Instead, the best thing libertarians can do on “Equal Pay Day” is to first point to how the private-sector changes brought by liberalism, markets and increased wealth have liberated women and brought them that much closer to equality with males. The cure for any remaining discrimination is more freedom and less government — not the other way around. Feminist groups frequently ask the government to keep its hands off their bodies. They should extend the same passion over protecting their independent personal lives to their professional lives, too.

Steven G. Horwitz, Ph.D., is the Charles A. Dana Professor and chairman in the Department of Economics at St. Lawrence University in Canton, N.Y.