In the past two weeks, there has been a lot of press about wage gaps, most notably at the White House and Goldman Sachs. So today I wanted to spend some time defining “wage gap” and discuss the heart of the issue: when does a wage gap mean there was discrimination?
Here’s the definition of “gender wage gap” according to Wikipedia and the OECD: “the difference between male and female earnings…as a percentage of male earnings”.
Sometimes to understand something, its best to focus on what something is NOT. A wage gap is NOT a comparison of apples and apples. In fact, looking at wage gap (as defined) is not very meaningful at all. I might as well compare what blondes and brunettes make, or what tall people versus short people make, and call any difference a “hair color wage gap” or “height wage gap”.
Knowing a person’s gender doesn’t allow me to compare them very meaningfully because a man and a woman may have different education levels, experience levels, have different jobs altogether, as well as different, difficult-to-measure qualities such competence, professionalism, negotiation skills, and marketability.
The Obama White House released salary data showing female staff earned 87% of what male staff earned. But it explained this wage gap as due to the average female staffer holding a lower-paid position compared to the average male staffer, not discrimination. The White House claims it pays equally for equal work (i.e. when it comes to the same position, the person makes the same amount, regardless of gender).
Goldman Sachs, is currently being sued for wage discrimination among other things. Princeton University professor and labor economist Henry Farber got his hands on the company’s compensation data for the Associate and Vice President classes of 2003-2011 in New York City and was able to apparently see that female Associates and female VPs were paid 8% and 23% less than their male counterparts.
I have not looked at the data and only read about it here and here, but it appears Professor Farber’s approach is to address all the “legitimate” reasons (e.g. experience, tenure or education) for pay and promotion differentials between GS women and men and if they are ruled out, then discrimination is left as the cause. Generally, elimination of other explainations seems to be the prevailing, accepted way to ‘prove’ discrimination causes a wage gap. Is there any other way to justifiably conclude that a wage gap means discrimination?
Anyone with significant hiring experience who is honest with themselves, knows that people command higher job pay or receive promotions for reasons that may or may not be rational. The best and worst hires are often impossible to predict and often known only in hindsight. Therefore, maybe what is going on is ‘discrimination’ (defined by Merriam Webster dictionary as “the practice of unfairly treating a person or group of people differently from other people or groups of people”) but sadly, a function of our deeply flawed cognitive abilities which are notoriously difficult (if not impossible) to change or monitor on an individual basis even with the best intentions.
Therefore, maybe hiring policies should stop hiring personnel from making impression-driven decisions in the first place. If you paid everyone who attains the same position the same base salary, then you know you are not doing something irrational. This doesn’t address bonuses and promotions, but at least you’ve reduced any basic pay discrepancy between people who do the same job. You might hate this suggestion because there’s a slippery slope towards a dystopian system where individual differences are not celebrated nor rewarded, but is there really evidence mere mortals can tell the difference correctly? Maybe the best compromise here is to create a policy of equal base pay for equal job positions, and consider deviations from this practice as suspicious enough to justifiably conclude some discrimination unless otherwise proven. It might be cheaper than all of these discrimination and equal pay lawsuits put together.