Background Characteristics: The Root to Pay Inequality

By Bradley E. Neufeld*

One of the luxuries of being a modern post-industrialized nation is that the people are able to concern themselves with issues of fairness and equality. In Canada, with the emergence and development of minority interest groups and finally in 1982 with the entrenchment of the Charter of Rights and Freedoms in the Constitution, Canadians have been given a medium to voice their concerns. One area of great concern to many has been with regard to the fairness and equality of employer treatment on the labour market.

                One of the most intriguing debates in the study of economics is the struggle over pay equity. Many books, articles, theories and finally legislation have come as a result of this struggle, however the gap to a great extent remains. The reasons for this emergence become clear when one studies the underlying principles that shape the reality of life for men, women and employers on the labour market with regard to their behaviour, and choices. This essay seeks the answers to the gender pay gap as many others have done before, however it does not conclude the answers to be found in discriminatory practices based on sex. Instead the answers to the gender pay gap lie in those characteristics and traits that are developed and influenced off the labour market and correspondingly result in the development of characteristics on the labour market. These characteristics influence the different decisions made by the female and male labour force in general. Through a discussion of socialization, human capital formation, statistical discrimination, family life, training records, and full versus part time work, it can be concluded that this is overwhelmingly the cause for the gender pay gap.

 

SOCIALIZATION

                The most important part in understanding the differing background characteristics of men and women and thus the gender pay gap is the understanding of the contrary process of socialization that the two go through. Socialization effects everything in an individual’s life, from the choices made in school subjects and the pattern in extracurricular activities to the goals one sets with respect to family and career. This is not an unusual phenomenon; indeed all cultures throughout all time create roles that help to formulate the identity of the people within their society.

Within modern western society, family, school, church, and the media all act to create gender roles. They direct men to become husbands, fathers and providers and women to be mothers, wives and homemakers. In part, because of this women are considered to be better with children and better at housework than men. Whether this is true or not is beside the point. The reality is that we see it as so and therefore in general it is. Due to this, women may choose to rear children merely because the rest of society is conditioned to believe they are better at doing so.  (Perlman and Pike, 1994, p.14)


Another result of the socialization process is the differing perspectives created for men and women with regard to their employment. Men are socialized to think that their job is who they are; very often they formulate their identity based on it. Western culture tends to put a great deal of emphasis on the nature and rank of a man’s job and is quick to make generalizations about him based on it. Women on the other hand receive a great deal of their identity from the creation and success of their family and their role as mother. Women unable to produce or care for children carry with them a very negative social stigma. This point can be illustrated by the increasing popularity of invetro-fertilization, despite the risks to the woman’s health and the opportunity for adoption or not having children at all.

The ever-present concept of family permeates itself into many decisions women will make on and off the labour market. For women, family priorities will be placed above career success. This will foster them into different degrees and different occupations than men. What men and women favour and the preferences and choices they make as a result have been bred into them and however discriminatory this may be, it does not take place by employers on the labour market.

There are those who may argue that the differences are not socialized into men and women respectively but are innate and are a product of nature. For the purposes of this paper, this discussion is of little consequence; the point to be made is merely that men and women are different. 

 

HUMAN CAPITAL FORMATION

                The previous argument becomes more concrete when one considers the formal education received by men and women. For the most part, the level of education is equal for both genders, (Statistics Canada). The only exception that emerges is in the area of graduate work and although this would have an effect on the pay that would be received, the gap is unsubstantial enough to base an entire argument. The important point to ponder is the types of degrees and areas of study chosen by each gender and the hypothesized rational for it.

“Women tend to acquire their human capital in particular field associated with their gender.”   (Perlman and Pike, 1994, p.40) The key to this quotation is the word ‘associated.’ Through the process of socialization men and women are presented with certain employment opportunities for boys and certain types for girls. Although this has been in decline over the years, there still is a separation between the types of jobs appropriate for the two sexes. However, increasingly it has less to do with job specifics and more to do with job type. An example is that women are more associated with caring and helping others and therefore are fostered into areas of employment such as social welfare.

Other impacting factors on the development of human capital include the way women view their employment. It is found that women put a greater emphasis on contribution of their job to society, job satisfaction and social position and less interest on income than do men.  (Perlman and Pike, 1994, p.41)  Further they find features such as a safe and clean working environment more preferable than do men.  (Perlman and Pike, 1994, p.41) This may lead to more women majoring in a field such as the humanities because they feel that making money is less important in making a career choice than the factors listed above.

Others conclude that women enter fields that can more readily accommodate their household and family responsibilities. They enter fields of study knowing that they will be engaging in the childcare and other family related duties and choose paths that may offer less severe penalties for work discontinuity that such actions may cause.  (Perlman and Pike, 1994, p.36)     

For such sociological and other practical reasons women choose degrees more highly favoured (between 3:2 and 2:1, Statistics Canada) in the humanities, fine arts, education and social sciences. Meanwhile men are equally more highly favoured within the fields of math, physical sciences, and engineering and applied sciences. The types of employment and the wages incurred are in part a result of this discrepancy.

Once men and women exit their respective educational facilities, due to their degree choices it is seen that greater proportions of women enter the public sector with men heading to the private sector.  (Joshi and Paci, 1998, p.77)  With private sector jobs on average paying more than public sector jobs, the result of higher wages for men can be on average assumed.

Unions also play a significant role in determining the pay for men and women. Male dominated occupations have been typically more highly represented by union forces. In areas of low skilled labour many of these male dominated jobs have joined together to form very strong unions that traditionally have had a major role to play in the raising of their wage. Women by choosing careers other than these well-organized and unionized ‘male’ jobs in favour of typically ‘female jobs’ have missed the benefits that come with them. Employers in all cases resist unionization regardless of the sex of the instigator and therefore this action is not sexually biased.

With respect to human capital formation it is also important to make note of the rational nature of people. Women, planning to make decisions about the development of their education may receive wrong, lack of or biased information. The popular opinion (and misconception) is that women are underpaid due to discriminatory reasons will effect their rational decision process and as a consequence lead to women investing less in themselves. This is known as expectancy theory; if you expect to be paid less, you will invest less. The result is you will have fewer qualifications and therefore will see your self-fulfilling prophecy come true. 

 

STATISTICAL DISCRIMINATION

                Statistical discrimination will be mentioned throughout the paper on numerous occasions, therefore it is important the reader have an understanding of the concept. Although it is not directly a background characteristic, it does result from them and can significantly impact the pay gap and influence future developments of men and women’s background characteristics.

                First and foremost, firms consider experience to be very important. The types of employment you have had in the past, the number of years you have had in a given field, and the amount of on the job training received or additional job specific courses taken are very influential in determining employment, promotion and pay. The validity of a correlation between experience and productivity can be debated, however such a discussion would be irrelevant because the reality on the labour market is it is seen to be a positive one.

                The reason its impact is so significant is because men and women can be easily segmented. Due to the high cost and non-specific information employers are inclined to make decisions based on averages. If in general men are more productive, and have longer periods of continuity, more men will be hired and promoted. This will happen so long as the supply of workers exceeds the demand and is not based on sexual discrimination but discrimination based on the general best interest of the firm.

                As a result, statistical discrimination “can lead to female labour supply decisions that have a negative influence on a women’s wage,”  (Perlman and Pike, 1994, p.6) through the crowding of women into jobs where either statistical discrimination favours them or into markets where on the job training and experience is not as important.

 

FAMILY LIFE

                What women have faced and to a large extent continue to face today is the mother versus worker dilemma. For men, their role as family provider does not create a separation of duties. For women choosing one or the other means sacrificing part of the other and more often than note the former is picked. “For many women it is proving to be extremely difficult to decide whether they are mainly mothers who happen to work, or workers who happen to be mothers."  (Fuchs, 1988, p.74)

                As a result of women choosing to be mothers first, some serious effects on the subsequent choices they make ensue. If they grow up expecting to have and raise a family and therefore expect to spend more time off the labour market they will invest less in their human capital or they will invest differently so that they can take on jobs that will allow them a flexible schedule. This will further negatively influence their decision to undertake and experience the long and demanding programs of medicine, law or business graduate programs. In a study by Mincer and Polachek, they later concluded, “those with most home-work time are least likely to enter high-paying managerial or professional fields.”  (Perlman and Pike, 1994, p.36)

                Time also becomes a critical factor for women with families. Women have more time consuming responsibilities that traditionally men have not had and do not take part in to the extent that women do. From the perspective of the analysis done by Gary Becker, this additional increase in effort at home results in less available effort on the job and has a negative influence on the quality of output by women. If women are therefore less productive, then the lower rank and pay they receive is appropriate. There are many that dispute this on the basis that women do not use up all of their energy and instead just have less leisure time. However, through the use of common sense, if one person can focus all of their time and energy on a few tasks they are going to be more successful and productive than someone who has a variety of tasks regardless of leisure time. The result is that men are more able to completely and explicitly dedicate themselves to the ‘company,’ and more readily available to the companies needs.

                The restraints of time and family permeate their way into a variety of women’s choices off and on the labour market that affect their background characteristics. For example, lack of time will restrict women in the upgrading of their education while on the job. Men will have more time to take the extra course or program concurrently with work while women will be less inclined to do so. This will have an impact their levels of experience favouring the men.

                They may also be more willing to accept lower pay for flexible hours and close proximity to home to better deal with the realities of raising a family. Since a very large percentage of part time work is close to residential neighborhoods (Joshi and Paci, 1998, p.79) this further perpetuates females entering this market the results of which will be discussed later.     

                Due to the nature of child birth and the social stigma with women going directly back to work after giving birth, most take time off from their jobs on maternity leave. For some the absence can be quite short while for others many years can separate their presence on the labour market. The discontinuity in the training record and the effects that follow will be discussed in the following heading.

                By removing one of the factors of restraint on women a closer tie to family and wages can be ascertained. In a study by Polachek and Siebert in 1993 it was found that in the USA the gender gap had narrowed significantly more for single women than for their married counterparts.  (Perlman and Pike, 1994, p.39) 

What this creates for women is a trend that perpetuates itself and the current state of affairs. “Women take the brunt of the domestic burden because they face low wages. They face low wages because they do not commit themselves wholeheartedly to the labour force.”  (Joshi and Paci, 1998, p.3)  This is known as the feedback argument, that low wage potential in itself may lead women to spend more time at home-work thus influencing a variety of factors that further lead to low pay.  (Perlman and Pike, 1994, p.38)

 

TRAINING RECORD

                Within most jobs on the labour market, the salary one receives is positively related to their age. The higher a persons age, in general the higher their salary. Women on the labour market are on average younger than males, (Statistics Canada). Given that experience is considered to be an important factor, the on average younger women are thus less experienced and therefore receive a lower rank and pay.

                Important also in the development in the careers of men and women is the extent to which they receive on the job training and learn-by-doing. The time spent on the labour market is crucial to their development and thus the creation of experience. For a variety of reasons (however mostly family related) women tend to interrupt there training record and men do not.

                “The occupations (women) enter, though they may pay well at the outset, are those in which continuity does not count for much, which require less learning through experience, in which their productivity does not atrophy with disuse and consequently have a flatter earnings profiles than do the occupations they do not enter…Thus women who hold jobs in ‘male’ fields are concentrated into those branches in which continuity costs less, they tend to be in entry level positions or in low wage firms and are less apt to advance in or from these jobs.”  (Perlman and Pike, 1994, p.35)

As a result, female dominated occupations would have a lower average earnings profile than ‘male’ fields and women would earn less.

                From the perspective of the employer, if it were expected that on average his female staff would interrupt the continuity of their employment for an undetermined amount of time, the firm would from a strictly economic perspective invest less in their capital formation and on the job training. Further, staff that had remained with the firm for longer periods of time are likely to be rewarded with more promotions and advancement. Therefore, it would be a more sound investment, even if only marginally, for the profit-maximizing firm to invest more in or hire more men.

 

FULL TIME VS PART TIME

                It is important in the discussion of female labour to note that they dominate the part time market. Of all the women who are on the labour market, one quarter of them find themselves in part time work, (Statistics Canada). Crucial to understanding this further is that the majority are there because they want to be and are not being crowded into such areas through discrimination. In fact, the dramatic increases seen by women in labour force participation since the 1960s have been largely as a result of their involvement in part time work.  (Joshi and Paci, 1998, p.3) The way that this type of employment effects women is not specific to them, men too suffer similar effects. However because of their dominance in the overall market and with relation to the female overall work force, its effects are more pronounced on their average earnings per hour.   

                Within the part time field of employment there are limited possibilities. The positions often require less training and are not as important to the overall success of the firm. Thus if a woman, exiting college with a similar degree as her male equivalent may have to settle for a job that pays less, is not necessarily in her field of study and in fact she may be over qualified for simply because she wants to remain part time.

                Part time positions also rarely find their way into the higher ranks of a firm tending to stay at the more unskilled end of the occupational hierarchy. Senior management positions or high paying specialized jobs rarely offer part time opportunities therefore there is little room for advancement for someone who wishes to remain part time.

                Firms that are successful tend to grow and expand. Those that are not, stay relatively small. Smaller firms offer more part time employment (Joshi and Paci, 1998, p.77) therefore women who dominate the part time market are more highly involved with less successful and less profitable firms thereby receiving a lower wage.

                Having a limited number of interesting, good part time jobs that are close to home with flexible hours puts the ones that are in high demand. Knowing this, employers are able to lower the benefits and pay received in these jobs to match the demand further lowering the wage of women. “All preferences satisfied by a job make it a subject for a lower compensating differential, leading to a lower wage in a competitive market.”  (Perlman and Pike, 1994, p.41) Further, the choices of women are limited if they are looking to change their job for one with higher pay. Women are therefore less mobile than their male co-workers are.

                Unions also play a major role in determining the wages of men and women. They have in the past raised the wages of many underpaid low skilled and high skilled jobs. The problem that emerges is that part time workers are not as regularly unionized as much as their full time equivalents.  (Joshi and Paci, 1998, p.80) Therefore even within the same job category or classification, different wages will be paid not based on sex but rather on the bargaining effectiveness of full time employment.

                Part time workers also only receive a fraction of on-the-job-training and learning-by-doing that full time workers do, simply because they are only there a fraction of the time. In addition employers only pay for training upgrades for one quarter of the part time work force where as they pay for one half of the upgrades of full time staff.  (Joshi and Paci, 1998, p.81)

                Within the discussion of part time, it is also important to consider the effects of those individuals that work overtime. Men it seems on average are more inclined to do so than women with the average work week of a man being just over forty hours per week while full time females only average just under forty hours per week, (Statistics Canada). This will not only have an effect on the amount of experienced gained by the two genders but as well it will show a commitment to the organization is greater by men than for women thereby having a greater chance on increasing their opportunity for promotion. It can also be assumed that if men are working overtime and women are not they are being paid more because labour laws stipulate that over eight hours per day or forty hours per week (which ever is greater) must be paid time and a half. More men working overtime means on average more dollars per hour. 

 

OPPOSITION

                It is important to state that all the statements made throughout the body of this paper are based on generalizations. There is no doubt that for every statement that has been made, there will be an exception that is equally plausible. Just as there are many women who make more than men, the gap in pay between men and women is a general pay gap therefore we must use generalization about the differences in the background characteristics between men and women.

                It is also important to note that just as the times change, the attitudes of men and women will change. What is crucial to note however is that even if tomorrow men and women were socialized in a gender neutral way and their background characteristics became equal in every regard, it would still take upwards of twenty years to completely eliminate the gender pay gap. Enough time would have to pass to have a complete turnover in the work force. So even though critics may argue that men and women are getting closer in the variety of degrees they choose and the extent to which they consider their family, it will take many years for these recent graduates to become prominent employees.

                It is also not the intended purpose of this essay to completely disregard the presence of discrimination on the labour market. It does exist and if one sexist employer hired and promoted all women it would be the underlying cause however this is not the case. We have however, a variety of employers with a variety of different people making decisions at many levels within an organization. People who make decisions based only on sex will find themselves less profitable and less successful and eventually become an equal opportunist in today’s global market place. Therefore it is to be conceded that it does exist in the short run and does have some influence on the gender pay gap, but in Canada, the percentage would be very low.                

 

POLICY IMPLICATIONS

                Within the Canadian context, there is often a great deal of reliance for the government to set the moral agenda for the rest of the countries business and though they are often not required by law to follow suit, it is hoped they will follow the example. With regard to pay equity the government has been an equal opportunity employer for many years instituting such policies as affirmative action and pay equity. To what extent however should they legislate for the rest of the country to do the same?

                Already within the scope of the law employers cannot discriminate against their employees on the basis of sex. If they choose to hire, fire, promote or give preferential treatment to someone based in any way on gender they may be sued, however some believe this is not going far enough. There is an attempt to classify and compare different jobs and estimate what they should be worth. Should the government become more active in this field and then legislate that all companies make their pay scales comply with their standards? Should it be taken further with the government taking a more active role in the hiring and promotion of private business giving them certain quotas to meet?

                If the reason for the gender pay gap was one that was as a result of discrimination then perhaps yes some of these options should be at least entertained. However given that it is not and is in fact due to different background characteristics, such legislative acts are a mere band aid cure that does not deal with the problem if indeed there is a problem to deal with.

                Public policy can simply be defined as “what government choose to do and what they choose not to do.”  (Dye, 1978, p.3) Therefore it should be the policy of the Canadian federal government to do nothing at least in the area of business and legislation. Employers are making decisions based on what is in the best interest of their firm. They are presented with the decisions and choices made by prospective employees, with reasonable assumptions about how they will behave in the future and hire and promote according to what is in the best interest of their firm. In essence, however blunt, “women get what they deserve.”  (Perlman and Pike, 1994, p.34)

                If the government wishes to be active in shaping the workforce demographics and pay of employees then it should be focusing its energies on how the children in this country are raised and the types of influences on them. It is neither clear how this could be done nor how many decades it would take to effect change, but to do so would mean dealing with the root of the problem, that is the only way to solve it.

“Any program or policy designed to reduce gender economic differences…to be successful must have a substantial impact on pre-market societal conditioning. We might initiate a Comparable worth programme that raises the level of nurses’ wages to that of engineers within firms, but by such a formula we cannot direct parents and others who mould tastes and preferences to try to divert their girls from career preparation in nursing to engineering.”  (Perlman and Pike, 1994, p.2)

                Other spending initiatives also may be able to help. Universal day care for example could allow women the opportunity not to discontinue their work and allow them to work full time. However, with an action such as this we are negatively rewarding families that choose to spend more time and energy with their children. Others have proposed an allowance for all families with children or mothers that stay at home. However, with both of these there is no assertion that families will use it for day care or to increase the mothers human capital that she does not receive from being on the job and learning-by-doing.

                Therefore it can be summed up that perhaps the best answer is to do nothing. Things are as they are because that is the way they are supposed to be. If over time women decide to make different choices and the socialization process changes and as a consequence women’s background characteristics change, then this to should be equally acceptable. 

                  

CONCLUSION

                In closing, most economists would agree that background characteristics to some extent or another do have an effect on the gender pay gap. Given the clear differences in the socialization process that men and women undergo before entering the labour market and the subsequent decisions made in their initial human capital formation. What they often fail to realize however is the extent to which background characteristics have on other aspects of labour force involvement and pay including statistical discrimination, ones family life, ones training record and the results of part time work. After these have all been carefully considered and their net effects on the pay of men and women have been calculated one must surely come to realize that the major contributor to the gender pay gap is attributable to background characteristics. The development of such characteristics and the choices made by employers and employees because of them shape the labour market we see.

                Victor Fuchs said, “millions of women believe that they earn less than men because they are women and they are correct. But that it not the same as saying they earn less because employers discriminate against them.”  (Fuchs, 1998, p.3) It is important that we come to completely understand this reality so that a better understanding of the true value of women to our society can be realized

 

REFERENCES

Borcella, Germaine. (1985). Jobs for Women: a plea for equality of opportunity. Presses Centrales de

Lausanne.

Fuchs, Victor. (1988). Women’s Quest for Economic Equality. Harvard.

Joshi, Heather and Pierella Paci. (1998) Unequal Pay for Unequal Work. The MIT Press.

Perlman, Richard and Maureen Pike. (1994). Sex Discrimination in the Labour Market. Manchester

University Press.

Statistics Canada 1996, 1997, 1998 Statistics on Employment.



                [1] An earlier version of this paper was prepared for Morris Altman (Economics 327.3) at the University of Saskatchewan