If women are paid less for the same work, why don't employers hire just women? Do employers decide to lose profits just out of sexism, in feminists' and researchers' opinion? It doesn't make sense to me. In the free and competitive market, if people earn less, it means they generate, or are expected to generate, less added value (for example, because they are less educated). Am I wrong?
There could be several reasons here are just few:
Principal-agent problems. Firms are typically not managed by their owners but by managers (agents) who act on the behalf of owners/shareholders (principals). While, owners might desire to maximize profits agents can to some degree act to pursue their own goals (see discussion in Hendrikse Economics and Management of Organizations).
For example, CEO might spend more lavishly on things like their private jet, limo, having HQ built by famous architect than profit maximizing CEO would. In the same way CEO/manager with taste for discrimination might pursue that taste even at the expense of profit (to a degree of course).
Consumers could have taste for discrimination. This is in fact classic example coming from one of the earliest work on discrimination. If consumers simply have preference for seeing men instead of women at some work and are willing to pay for satisfying this preference, there will be wage gap between men and women (see Mankiw Principles of Economics pp 395).
Mankiw has a good example of this for the race wage gap, but the logic of the example directly extends to gender wage gap:
Studies of sports teams suggest that racial discrimination has, in fact, been common and that much of the blame lies with customers. One study, published in the Journal of Labor Economics in 1988, examined the salaries of basketball players and found that black players earned 20 percent less than white players of comparable ability. The study also found that attendance at basketball games was larger for teams with a greater proportion of white players. One interpretation of these facts is that, at least at the time of the study, customer discrimination made black players less profitable than white players for team owners. In the presence of such customer discrimination, a discriminatory wage gap can persist, even if team owners care only about profit.
It could be result of government intervention (See discussion in Mankiw Principles of Economics pp 395).
For example, many governments around the world mandate that firms have to provide women with job guarantee during late pregnancy/mothers leave. Perks like these are costly and in competitive markets firms will just pass costs of these perks directly on their female employees (in form of lower wage - although this would not affect total compensation it is part of explanation for wage differentials).
Most labor markets are not perfect. In imperfect labor markets there are often quasi-rents to have that can be split between employee and employer. If for example women tend to be less assertive during negotiation (e.g. see Amanatullah & Morris, 2010), they might end up with less quasi-rents than their male counterparts (this argument is covered in greater detail in the Papayapap's answer).
The list above is not exclusive, but those are one of the major reasons you will commonly find in economics textbooks.
To sum it up, the argument you make in the question is valid argument but it is only guaranteed to work under host of additional supporting assumptions. For example, assumption that customers do not care about gender might be true in some profession but not in others (e.g. perhaps male anchor appears more trustworthy to audience?).
Although careful studies that control for all relevant characteristics show that gender wage gap is much smaller than laymen commonly perceive it to be, based on senseless comparison of aggregates between male and female pay, many studies show that there still is some gender pay gap that cannot be accounted for by objective factors. See discussion of these results in this nice explainer from The Economist. For example, in 2016 the gender pay gap in the UK was estimated to be only $0.8\%$, in France$2.7\%$ and Germany $3\%$, once objective factors were accounted for. That is admittedly small, but should not be trivialized nonetheless.
Quite simple. If women are paid less, then that's because people believe their work to be worth less. The same believe, that womens work is worth less, then stops employers from hiring more women.
(Please note that I don't endorse this view. It is, however, the most simple explanation inside of the assumptions made by the question. Also, as a plus, this would mean that employers hiring more women have an inherent advantage.)
If markets were perfectly rational, then black women would have a near 0 unemployment rate, because they are cheapest workers in the economy, meaning that they are more strongly underpaid for the same skills, experience, and occupation than virtually every other class of worker. In point of fact, black unemployment is much higher than virtually every other racial category, despite having the lowest employer costs per worker. So we must conclude either that black people are just intrinsically bad workers, or markets are irrational.
Most people believe that the first computers were room-sized behemoths of vacuum tubes and relays. Nothing could be further from the truth. The first computers wore skirts and hair bands, and a good majority of them wore wedding rings, because being a single woman was economically hazardous just about any time before the beginning of this century. Even when computers switched from being people to being machines, the first generation of computer programmers were women, due to the stereotype that designing and building hardware was a man's work, but writing code and playing with switchboards and punch cards were sufficiently dainty duties for women to perform. This is why Grace Hopper got to program one of the first electronic computers, and why Margaret Hamilton was trusted to write the software which controlled the Apollo landers. It wasn't until about the 1980's that there was a societal shift which is still not fully explained in which programming suddenly became a man's work, and women simply left the field in droves.
Software Engineering is an important case study, because in the majority of occupations, men held most of the positions, due to few women working outside the home. Then, the advent of the sexual revolution saw a mass exodus from the kitchen to the workplace, and women started displacing men in a large number of industries. One could argue that traditional gender role models led to much of the occupational stereotyping that we see today, except that there were no such pressures which could explain the female-to-male transition we observe in the tech industry.
nick012000 cites the American Enterprise Institute to make the argument that the gender wage gap simply doesn't exist. But it's like saying that no racial wage gap exists because white people choose to become technologists and blacks choose to become athletes and artists. We must ask: Why does occupational stereotyping occur? After all, 35% of dentists are women, but 97% of dental hygienists are female. If the market is truly rational, then we must conclude that men are intrinsically better at being a dentist than women at the rate of 2:1. Surely we must carefully inspect the Y chromosome to identify the source of this inherent superiority!!! At the same time, women are literally 30x better at cleaning teeth, despite their significant incompetence at analyzing and diagnosing dental health! Only an "efficient markets" True Believer buys this explanation.
The reality is that when it comes to hiring, markets are not fully rational because humans are not. That much should be obvious. Specifically, there are actual physiological mechanisms which help enforce entrenched stereotypes in occupations, including the fact that women negotiate less aggressively for compensation, also noted by nick012000. These mechanisms fall under the umbrella of "stereotype threat". This is not just social science woo-woo. Empirical studies have demonstrated over and over that performance is based at least partly on how one perceives the overall societal expectations of one's race, gender, etc. in a particular context, like occupation. To put it simply, dentists and other MDs are predominantly men because society expects them to be men. Dental hygienists are women because society expects them to be women. And women are paid less than men because society expects men to make more money than women.
There are, of course, some industries where there is essentially 0 pay gap. These are generally low-skill occupations where the work product can be objectively measured, like Amazon warehouse worker (it is straightforward to count how many items are picked or boxed by a given worker during a shift). But, generally speaking, the higher one goes on the pay and skill ladder, the more wages begin to diverge by social classification factors.
At least one reason that fewer women enter CS programs today is that programming is now seen as a male-dominated profession. So even qualified women are more likely to go into female-dominated professions within STEM, like biology rather than physics or math. So it is not sufficient to control for occupation when asking whether there is a gender wage gap. The choice of occupation is not entirely free, and society generally shuttles women into lower-paying occupations via these stereotyping mechanisms. The field of economics itself is one of the most gender-biased in academia.
Furthermore, when women do enter a new industry that was previously male-dominated, the wages inevitably fall. So one cannot make the argument that women choose lower-paying occupations, and therefore, there is no wage gap. It is more correct to say that they create lower-paying occupations by choosing them. This is the massive flaw in studies which just look at gender gaps within a given industry. Clearly, when the exact same job was performed by men, owners were willing to pay higher salaries. When women come to dominate a profession, the falling wages cannot be explained by less competent female workers, because the wages of the remaining men are also depressed. It is merely the fact that the field is now woman-dominated which explains the lower compensation. An honest analysis would inspect this historical shift when measuring the gap.
EDIT ---- Supply & Demand
A simplistic but unsatisfying answer to female-wage-dilution phenomenon is "supply and demand". That is, more women competing for jobs that men previously held increases the supply for those jobs, consequently lowering the wages necessary to fill them. If the supply of men working those jobs remained the same, and they simply saw a large net influx of women, then this argument would be sound. The reality is that when women enter a new field in numbers, men leave. Thus, we can assume that the supply remains relatively constant. Furthermore, these men must then move to other occupations which are already staffed.
If pay were gender-blind, we should expect the overall increase in labor supply to lead to an across-the-board decrease in wages, as men moving to new fields lowers wages in those new fields. Of course, that is not the case. What actually happens is that closely related fields which are both men- and women-dominated become diversified in their relative pay. A compelling example is "janitors" vs "housekeepers". One can imagine that the skill set is comparable in both classifications (indeed, most people will likely struggle to offer a definitive separation of duties that matches actual paid positions). And yet, janitors are better paid than housekeepers, and as one should be able to predict by now, janitors are male-dominated, and housekeepers are female-dominated. Even if oversupply caused reduced wages, why would women not simply move laterally into the janitorial arena to recover higher wages and introduce market equilibrium? The oversupply theory beggars belief.
Because women are not paid less for the same work when all the variables are taken into equasion.
Caveat: below answer is a nearly verbatim copy of my earlier answer on Politics.SE on the topic
In short, the much-cited "77 cents" figure is from the "lies, big lies, and statistics" department of political propaganda.
The real unexplained wage gap is 94%, and it shrinks to nothing in many cases especially if you normalize for child care (e.g. only compare childless women's and not all women's earnings).
The AAUW has now joined ranks with serious economists who find that when you control for relevant differences between men and women (occupations, college majors, length of time in workplace) the wage gap narrows to the point of vanishing. The 23-cent gap is simply the average difference between the earnings of men and women employed “full time.” What is important is the “adjusted” wage gap-the figure that controls for all the relevant variables. That is what the new AAUW study explores. (source: Huffington post, citing Association of University Women (AAUW) study "Graduating to a Pay Gap")
The AAUW researchers looked at male and female college graduates one year after graduation. After controlling for several relevant factors (though some were left out, as we shall see), they found that the wage gap narrowed to only 6.6 cents.
So, is it due to discrimination?
As per above, of the "23 cents" gap, 17 is 100% definitely has nothing to do with discrimination at all.
The researchers honestly admit that they don't know how to explain the remaining 6% (as in, at the moment they can't attribute it to discrimination).
How much of that is attributable to discrimination? As AAUW spokesperson Lisa Maatz candidly said in an NPR interview, “We are still trying to figure that out.”
Interestingly, if you look at younger generation, at least in the UK, not only does the pay gap disappear, but it reverses itself to men's disadvantage:
The latest report from the Office of National Statistics is even more conclusive: the gender pay gap effectively doesn’t exist between the ages of 18 and 39. Between the ages of 22 and 29, women marginally out earn men.
So what can possibly explain it? Without outright assuming it's discrimination due to your own political biases?
The same Telegraph article linked in the last paragraph has a possible explanation:
However, it's impossible to ignore the fact that men's wages start outstripping women in the years after most people have children.
And if that hasn’t convinced you, research by Essex University and the London School of Economics has indicated that lesbians out earn straight women.
All the evidence points towards a gender pay gap that is, in part, driven by childcare rather than sexism. This doesn’t mean that we shouldn’t care about closing the pay gap – but it does make the situation more complex.
Another interesting theory I heard proposed (though never saw any research conclusively backing it up) was that one possible factor is much higher prevalence of males among high-functioning autism diagnoses. There are plausible reasons to suppose that there might be causative explanations.
Additional theory (again with no research support I'm aware of) rests on the fact that men generally are more risk-taking than women.
If a risk is taken and pays off, that makes the person high-performer and they usually would get paid more.
If a risk is taken and fails, you usually don't get paid less (although in edge cases you get fired but that's rare unless one was Lehman Brothers level reckless).
To be successful, a company needs to be agile - which means internal experimentation and risk taking.
In other words, the short answer is that the reason employers don't hire just women because it would not lead to increased financial performance based on reality. An overwhelming majority of the wage gap has valid rational economic explanations that have nothing to do with biases or sexism.
The only way you can reliably have a wage gap arbitrage is by hiring women with kids - but then you either have to invest more to help them be more productive (e.g. on premises company sponsored child care) - which eats into your arbitrage and likely eliminates it, OR, have employees who by necessity are less productive on average. Being a parent may be a great net benefit to society (after all - those parents are raising people who will be paying for your retirement!), but unfortunately it does objectively bring less value to the company due to less overtime, more time off, distractions etc... Most normal human being evolved to value their children more than company's bottom line.
By the way, I can't find a cite now but I vaguely remember that some companies in USA in the past actually managed to succeed at this exact option (provide extra child care support, and have more productive and successful operations due to attracting high quality workforce who would otherwise not be able to work).
I must preface that the original question as it stands is way too broad.
It probably needs to be cut down into smaller parts, but that's hard to know how to do if you are a layperson. This question really is an enormous one, and although there are a lot of answers that give bits and pieces of info, because the question is so broad, there are going to be lots of opportunities for people to answer this question with a heavy slant one way or another, with varying quality of information. It's easy to cite a few papers in isolation and present it as the smack down conclusion for one side or another.
Is there gender discrimination?
Women are paid less than men for various reasons, and it's complicated.
Some of it is gender discrimination, and some of it isn't.
It's very easy to misconstrue how strong or weak gender discrimination's impact is.
Even if the total pay differential explained by discrimination was only 3-5% as some people so far have suggested (it is almost certainly not), that is still often the equivalent of two or three raises at a job. I remind everyone participating in this discussion to be civil, according to the rules of the site, and not to use the presentation of "objective fact" as an excuse to be untactful or ungraceful with how you present your case.
Let me give my best effort to scratch the surface of this question. I try to provide direct, un-paywalled PDF links to papers where I can. Otherwise I will link paywalled links to the papers.
For now, I will only discuss a few of the papers provided below, and will leave the other papers as relevant further reading. Some of the papers are much more technical than others, and some papers probably can be left as further reading, rather than having any additional commentary. I will also consider making this answer a community/wiki answer, so that others may provide good commentary on the extra papers, or provide new papers that I have missed, since there are so many papers that are relevant to this topic.
Labor Demand and Labor Supply
- Sullivan (1989) Monopsony Power in the Market for Nurses
Sometimes pay differentials are attributed to a "taste for discrimination" as it is known in the literature (either by consumers or employers). The existence of monopsony power, which is where there is not perfect competition for the supply of labor and an employer can push wages below the marginal product of labor (the value of your work), may be an alternative explanation for a wage differential.
There is evidence that monopsony power does exist in markets such as the nursing industry. Nurses may see hospitals as highly differentiated (different labor practices, safety, location, etc.), and "wage standardization" programs may effectively amount to collusion to depress wages among hospitals.
If monopsony power by firms depresses wages though, then this raises the question: Does it do so equally for men and women?
Ransom and Oaxaca (2010) New Market Power Models and Sex Differences in Pay
These are two papers that study pretty different markets (US grocery stores data and German employer-employee data), but both try to achieve the same goal of estimating the labor supply elasticity between men and women. That is, can firms exert more wage pressure on one group compared to another? The interesting thing about these studies is that they look at how elastic both groups are at the level of the firm, and not just at the level of the market. What does this mean?
In the labor market as a whole, women are usually observed to be more elastic than men, implying that for one reason or another, they are more sensitive to wage differences. Does this mean they can afford to be choosier with which jobs they take? Well, once workers are within the firm, for some reason women then are less elastic than men, which means that the firm has greater wage setting power over women due to monopsony power. From the second paper:
Our results imply that about one third of the gender pay gap might be wage discrimination by profit-maximizing monopsonistic employers.
The second paper tries to build off previous work (including some from the authors of the first paper) by trying to model search frictions. They do not wish to assume that transitioning to and from non-employment is wage-inelastic (that wages do not affect how easy it is to quit and look for a better offer). An open question that these papers don't answer is why exactly women may end up being more inelastic than men, more unwilling to quit jobs that may underpay them.
But despite the healthy caution the paper gives as to how much of a role gender discrimination plays, consider the note from the second paper:
Whereas Robinsonian discrimination provides a relatively simple explanation for the persisting empirical regularity of the gender pay gap, it is difficult to interpret this pay gap as a long-run equilibrium outcome using Becker’s (1971) concept of discrimination due to distaste without assuming some sort of market power on the demand-side. Moreover, employers’ actions remain profit-maximizing when engaging in Robinsonian discrimination, whereas they are biased by costly prejudices when engaging in discrimination due to distaste because their profits are reduced in this case even if employers have considerable monopsony power (see, e.g., Bowlus & Eckstein 2002)
This means that when you consider older models of price discrimination (e.g. Becker), where discrimination due to distaste is mostly waved away due to the desire to be profit-maximizing, those models consistently don't hold up in real life, and models that include explicit discrimination (e.g. Robinson) are more consistent with what we actually see in the data.
- Cherchye, De Rock, and Vermeulen (2012) Married with children: A collective labor supply model with detailed time use and intrahousehold expenditure information
(I do not provide a pdf to the 2010 version as there seem to be significant changes between that paper and the final copy in 2012. I cannot currently find a straight link to the 2012 copy.)
This paper looks at improving traditional models of household production in a few ways, with one of them being by modelling child outcomes as a public good. As a whole it looks into a big question: if the wages of a mother or father changes, how does that affect who takes care of children, and does the gender of the parent matter in child outcomes? That is, is it better to empower men or women if looking to raise child welfare?
One reason people argue that the wage differential between men and women isn't inherently gender discrimination is because women naturally prefer to stay at home and say, take care of children, or commit themselves more to household production. Then, rational employers who are profit maximizing may pay a woman and man of equal skill differently because they expect the women may end up working for fewer hours in the future, even if the woman currently is unmarried or has no kids. Before going any further, it must be noted that this reasoning by itself would constitute statistical discrimination, which has its own literature.
However, this paper makes some interesting empirical findings regarding the household production angle. Men and women do have different preferences for what things to work on for household production, including childcare, and when you look at who is more effective at childcare, the authors find that given equal time with kids, an extra unit of time spent with the children is slightly more effective if done by the mother than with the father. So far seems normal, right?
But because there is such a large disparity between how much time the father and mother spend time with children, it would be more effective to empower men (!) to spend more time with children. If you look at the effects of raising a father's wage compared to the wife, what happens is that the man spends more time working and less on both childcare and other household production. The woman will spend more time on both market labor, childcare, and other household production, with less time in leisure.
Therefore, large pay differentials can adversely affect child outcomes, because if firms acting in such an aforementioned "profit-maximizing" way end up paying men and women of equal skill differently, it will not account for public goods such as childhood outcomes. The problem gets more complicated when you consider what happens when a wife's wage increases compared to the husband's wage. If the woman's initial wage is low, wage increases will actually decrease market production, until the wage is increased to around the average wage.
Modelling a household's use of time is very complicated. You cannot perfectly explain away the gender pay gap using just household preferences.
Rosenzweig and Schultz (1985) The Demand for and Supply of Births: Fertility and its Life Cycle Consequences
Goldin and Katz (2012) The Power of the Pill: Oral Contraceptives and Women’s Career and Marriage Decisions
Human Capital Investment
What can be attributed to the differences in the rate of return on education between men and women? Even when controlling for personal characteristics, women are paid less than men, and part of the reason for the increased rate of return women have to schooling, is that better educated women seem to be better equipped to deal with discrimination. This paper dis-aggregates an index of discrimination using Oaxaca decompositions based on years of schooling, in order to make this point. Not all of the difference in the rate of return to schooling is attributable to discrimination however. Women choose to work in sectors where education is highly valued.
Henderson, Polachek, and Wang (2011) Heterogeneity in Schooling Rates of Return
Mincer and Polachek (1974) Family Investments in Human Capital: Earnings of Women
Compensating Wage Differentials and Discrimination
Blau and Kahn (2003) The US Gender Pay Gap in the 1990s: Slowing Convergence
Goldin and Katz (2006) The Homecoming of American College Women: The Reversal of the College Gender Gap
Hammermesh and Biddle (1994) Beauty and the Labor Market
From the abstract:
Better-looking people sort into occupations where beauty may be more productive; but the impact of individuals' looks is mostly independent of occupation, suggesting the existence of pure employer discrimination.
- Oaxaca and Ransom (1994) On discrimination and the decomposition of wage differentials
Most work on statistical discrimination focuses on race. Suggestions for work more focused on gender are particularly appreciated.
- Arrow (1973) The Theory of Discrimination
(This is from a larger book on labor market discrimination.)
- Lang and Lehmann (2012) Racial Discrimination in the Labor Market: Theory and Empirics
(This paper may also fit in the section below.)
Statistical discrimination based on rational stereotypes are not sufficient to explain differentials in employment duration.
Schwab (1986) Is Statistical Discrimination Efficient?
Bielby and Baron (1986) Men and Women at Work: Sex Segregation and Statistical Discrimination
Not all discrimination is through wages. The heavy use of wage equations in the discrimination literature leaves some gaps when it comes to non-pecuniary benefits, discrimination in offers, unemployment duration, risk of non-employment, hours offered, etc.
For example, consider if all men and women of equal skill have the same cutoffs for when they would accept or reject a job. Men and women of the same skill then have a different distribution of offers they may receive due to discrimination, with men receiving on average higher offers. Then over time, one would observe that men and women will select into jobs that pay based on their skill, with some gap because men on average may get better offers. The magnitude of discrimination (the full distribution of offers) may be obscured by the observed wages that are accepted.
- Eckstein and Wolpin (1999) Estimating The Effect Of Racial Discrimination On First Job Wage Offers
This paper looks particularly at race, rather than gender, but can be further applied to gender in newer studies. Discrimination in terms of wages offered tend to result in smaller observed discrimination if you only look at wages accepted. In this study, the differences between ethnic groups was three times greater for wages offered than for wages accepted.
The gender discrimination literature has many facets, with a lot of plausible evidence for its existence, from all sorts of angles. Many related papers on gender discrimination can be found if you look through the citations of the papers I have listed above. The statistics that politicians may cite are not the same as what economists will actually tell you, so take whatever activist, blog, editorial/opinion column, or social media personality says with a grain of salt.
I will not provide a hard number for how much of the gender pay gap is attributable to discrimination because doing so accurately is almost impossible. Anyone who tells you a hard number may indeed be (inadvertently) lying to you, but this is a very difficult topic to approach, so some grace is needed when we discuss gender discrimination.
Comments on papers to add, or criticisms of papers listed are welcome.
This is an interesting question, and I don't have a good answer. Just pointing out about the second part that the canonical labour market model of Diamond-Mortensen-Pissarides views a labour market contract in terms of matching, when a surplus is shared between employer and employee through a nash bargaining mechanism. So, earning less does not necessarily mean lower marginal product in theory. Still the question of why employers do not anticipate having to end up in a higher bargained wage when they employ men and thus prefer to employ more women is very interesting. I am not aware of any literature on this. Maybe the ability to bargain better is part of skill and thus compensated? (No intention to offend anyone here, but there is quite a bit of literature showing that men are more successful in bargaining higher wages, for example Dittrich et al. (2014), Card et al., 2015. Neither the literature nor me though saying that this is main cause of the wage gap).
It has been shown numerous times that the apparent pay gap is largely due to women having to work part time or take time off for maternity leave, and that the gap is correspondingly in a narrow age range (I believe mid 20's +/- a few years). However, the statistic is often spun by computing hourly rates and averaging everybody together, and "women make less in general", despite being quoted often, is a myth.
It's often referred to more accurately as the "motherhood penalty".
Therefore, hiring more women would not save a company money. What it would do is ultimately require more employees to fill in for time off if any of the female employees took maternity leave, or it would raise the number of part time employees.
This is a very good question and I agree with the answer about the 'wage gap'. Education is a point that I want to add here.
A survey was recently conducted in the construction labour market in China. Women have relatively low hourly salary than men. We may think this's because women are not able to carry heavy materials. On the contrary, the majority of the workers carrying heavy materials are women. Those who in charge of the technical work are men majorly, and they have a better salary.
Is this because women are not capable of the work? No. Those female skilled workers can work as good as men. But very few women were taught to do technical works before. The 'masters' don't accept female apprentice just for 'tradition' reasons.
What we are doing now is to make equality to be a tradition of the future. Men and women have equality in education, and then equality in the job market.
Reference (in Chinese): https://www.zhihu.com/question/358322493
The gender pay gap is not statistical significant, as claimed by the mainstream economists.
Check this AER paper by a famous female scholar:
C. Goldin (2014) A Grand Gender Convergence: Its Last Chapter, AER https://pubs.aeaweb.org/doi/pdf/10.1257/aer.104.4.1091