Hiding the Truth About the Pay Gap Between Men and Women

The debate over pay equity is front and center on the Congressional agenda. The first bill signed into law by President Obama, the Lilly Ledbetter Fair Pay Act, overturns a U.S. Supreme Court decision and vastly expands the opportunity to file pay and other discrimination cases. Another bill, the Paycheck Fairness Act, has already passed the House of Representatives and is likely to be considered by the Senate in the spring.

Paying someone less because of their sex is illegal and two federal laws, the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964, provide the framework whereby victims of pay discrimination can seek redress. However, some argue that these two laws are not effective at eradicating pay discrimination and that the laws must be changed. Central to their argument is the so-called “pay gap,” the difference between the average earnings of men and women.

In debate over the Paycheck Fairness Act, Rep. George Miller (D-CA), chairman of the House Education and Workforce Committee, said that today women earn “78 cents for ever dollar that is earned by a man doing the same job with the same responsibilities.” Miller then went on to say “if we are serious about closing the gender pay gap, we must get serious about punishing those who would otherwise scoff at the weak sanctions under current law.” President Obama expressed similar sentiment as he signed the Lilly Ledbetter Fair Pay Act into law.

To close the wage gap, Miller and his colleagues support punishing violators of the Equal Pay Act with unlimited punitive and compensatory damages. They also seek to make it harder for employers to justify legitimate pay differences, make it easier for trial lawyers to create large class actions lawsuits, and effectively eliminate the statute of limitations for many types of claims, among other things.

The argument that the pay gap must be closed rests on the assumption that the pay gap is largely attributable to employer discrimination. However, if the pay gap is to be used to justify such significant changes in the law, it seems entirely appropriate to examine the pay gap itself. Does it really measure employer discrimination? Do other factors play a greater or lesser role?

Economists who have studied the pay gap have observed that numerous factors other than discrimination contribute to the wage gap, such as hours worked, experience, and education. For example, Professor June O’Neil has written extensively about how time out of the workforce, or years spent working part-time, can reduce future pay. Likewise, economist Diana Furchtgott-Roth, in her book Women’s Figures, has written about the decisions that women are more likely to make to choose flexibility, a friendly workplace environment, and other nonmonetary factors as compared to men.

Recognizing the importance of unbiased research on the pay gap, the Labor Department recently contracted with CONSAD Research Corporation for a review of more than 50 existing studies as well as a new economic and statistical analysis of the pay gap. CONSAD’s Report, which was finalized on January 12, 2009, found that the vast majority of the pay gap is due to several identifiable factors and that the remainder may be due to other specific factors they were not able to measure.

CONSAD found that controlling for career interruption and other factors reduced the pay gap from about 20 percent to about 5 percent. Data limitations prevented it from considering many other factors. For example, the data did not permit an examination of total compensation, which would examine health insurance and other benefits, and instead focused solely on wages paid. The data were also limited with respect to work experience, job tenure, and other factors.

The Labor Department’s conclusion was that the gender pay gap was the result of a multitude of factors and that the “raw wage gap should not be used as the basis for [legislative] correction. Indeed, there may be nothing to correct. The differences in raw wages may be almost entirely the result of individual choices being made by both male and female workers.”

The Labor Department’s new report is clearly an important contribution to the debate over pay equity. But where is it? Although it was posted on the Labor Department’s web site just days after it was finalized, it was apparently removed as the transition in power was occurring between former President Bush and President Obama. We don’t know why the report was taken down, but certainly the timing is suspicious.

If the debate over pay equity is to be at the forefront of the Congressional agenda, then the Labor Department and the new administration need to acknowledge that the overwhelming evidence is that the pay gap is not based primarily on employer discrimination. Disclosure of the Labor Department’s report would be a good first step.

Michael J. Eastman is Executive Director of Labor Policy at the U.S. Chamber of Commerce. The Chamber is the world’s largest business federation, representing more than three million businesses of every size, sector, and region.

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For an in-depth examination of pay-equity for women, see "A Critical Look at 'Pay Equity' For Women."