We’ve probably all heard the expression “You get what you pay for.” This rings true for employers as well regarding the “gender pay gap.”
As we argue in a recent Heritage paper, employers pay for what they get. Despite claims that employers pay women less than men for the same work, an examination of wages across genders shows that factors such as education, experience, hours of work, industry, and career interruptions can explain away most of the “pay gap” between men and women. Other unobservable factors, such as non-cash benefits and personal choices, likely explain the small remaining difference.
Employers have little room for un-merited pay differences in today’s competitive economy. If they want to hire and retain the best employees, they must pay them according to their productivity. If they pay more than that, they will go out of business. If they pay less, their workers will jump ship to competitors. The Heritage report points out that “market forces compel employers to set pay on the basis of factors such as these that affect productivity. Businesses that pay their workers below their productivity see them accept better job offers from competitors.” Businesses have little economic room to discriminate.
Such factors cause pay differences in the federal government, where managers have no ability at all to discriminate. The General Schedule sets federal pay almost exclusively on the basis of seniority and grade—gender never enters into the mix. Nonetheless, the federal government still has an 11-cent pay gap. The Office of Personnel Management attributes this to “differences in occupational distribution.” The Heritage study finds that “females make up 75 percent of all federal social workers but only 17 percent of all general engineers. On average, federal social workers earn $79,569, while federal general engineers earn $117,894”—although male and female engineers earn virtually the same amount.
The pay gap goes beyond bad statistics. Many politicians use it to justify policies that would hurt women in the workforce, such as the Paycheck Fairness Act. This legislation would take away employers’ ability to pay employees based on their productivity, instead forcing employers to set pay based on standard objectives such as job title and years of experience. Forget performance-based pay or bonuses.
The current “you get what you pay for” system is fairer to workers and employers than one that makes recognizing job performance legally risky. Employers would certainly not respond to such a system by raising pay.