September 18, 2015

September 18, 2015 | Commentary on Economic Growth, Inequality

Boccia: 'Wage gap' cures are worse than the disease

For all the hand-wringing over the “wage gap” between men and women, there’s far less there than meets the eye. Once you account for factors that affect every worker’s pay level—things such as education, experience, choice of industry and occupation, career interruptions and hours worked—the so-called “gap” all but disappears.

A major discrepancy exists only when these highly relevant factors are ignored. Hyping the raw statistic—“Women are paid only 78 cents on the man’s dollar!”—without the relevant context creates problems.

For starters, it misrepresents the actual situation. Worse, the bogus claim is invariably accompanied by demands for government to do something to “correct” the trumped-up problem. Worst of all, the remedies typically demanded are actually counter-productive, harming those they are intended to help the most.

When addressing barriers to employment and higher earnings for women, we must be careful to pursue only those policies that actually help the least advantaged.

To that end, let’s first clarify the size and nature of the actual wage gap. The 78 cents on the dollar figure reflects the median earnings of full-time male and female wage workers, as reported in the Census Bureau’s 2013 Current Population Survey. Divide the median earnings for women working at least 30 hours a week by that of men working at least 30 hours a week, and you get 78 percent. That figure changes dramatically, however, if you take into account the very important factors listed above. It falls to a far less shocking — and far more equitable — 95 percent.

The wage gap is far greater for minority women precisely because of these factors. According to Milia Fisher, with the left-leaning Center of American Progress,“African-American and Hispanic women are significantly less likely to graduate from high school or to get a bachelor’s degree than white women.”

Fisher goes on to argue that: “Policies such as paid family and medical leave and paid sick days would help ensure that women of color are better able to balance work and family.” Others have recommended raising the minimum wage, since those jobs are more commonly held by women than men.

Unfortunately, all of these policy “fixes” have the unintended effect of dimming the job prospects of those they are meant to help.

Employers consider how much they pay people overall, not whether that compensation comes in the form of cash wages or equivalent benefits. That means that mandatory paid family and medical leave is typically paid for by workers themselves in the form of reduced wages. And because women are more likely than men to use these benefits, it can hurt their employment prospects.

Instead, federal law should lift restrictions that prevent certain workers from taking overtime pay in the form of paid time off instead of cash. This would give workers more flexibility in structuring how they wish to receive compensation.

As for hiking the minimum wage: Artificially high wages create unemployment. Minimum-wage jobs are typically entry-level jobs, offering opportunity to those with few marketable skills. These are the people hit hardest by mandated wage hikes.

In a free economy, wage earnings reflect worker productivity. Employers and employees contract with each other to find the best arrangement for each party. Government regulation adds costs to these arrangements and limits the forms they may take. This interference, though well-intentioned, inevitably kills jobs and restrains wages for workers.

Luckily, government can help boost wages by lifting harmful restrictions that prevent individuals from earning a living using their own skills and aptitudes. Costly licensing requirements, for example, block many individuals from making a good living, even without a college degree, as makeup artists, bartenders, florists, hair braiders, etc. Governments could also ease land-use restrictions and zoning laws that increase the cost of housing for the least advantaged, relegating them to neighborhoods far away from better job opportunities and higher wages.

We have a moral responsibility to pursue public policies that eliminate barriers to the employment of the least advantaged among us. Let’s make sure we choose those that actually work.

-Boccia is the Grover M. Hermann Research Fellow in Federal Budgetary Affairs at the Heritage Foundation.

-This piece originally appeared in Austin-American Statesman

About the Author

Romina Boccia Deputy Director, Thomas A. Roe Institute for Economic Policy Studies and Grover M. Hermann Research Fellow
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Economic Growth, Inequality