Wage Gap Depends on the Industry, Not the Person

Wage GapAn article in Sunday’s Chicago Tribune on tradeswomen reminded me that talking about the pay gap requires specificity about the industry. The article, about the rise of women in trade professions, noted that according to the Department of Labor, women account for fewer than 30 percent of employees in some high-wage sectors and more than 70 percent of the workforce in low-wage sectors such as personal care and health care support occupations.

Consider ‘explained’ and ‘residual wage’ disparities within a profession

Wage gaps are often broken down into two parts: explained and residual. The explained portions of the gaps include factors such as level of education, quality of school, experience, etc. That portion of the gap has largely decreased over the years as more women have sought higher education and entered the workforce, gaining experience.

The residual portion of the gap is what we can’t concretely account for: it’s “often termed ‘wage discrimination’ since it is the difference in earnings between observationally identical males and females,” according to Claudia Goldin, an economics professor at Harvard.

Critics often argue that it’s not discrimination, but rather the result of the different personal choices men and women make: from different majors in college, to decisions to leave the workforce once children arrive. But a study by the American Association University Women (AAUW) shows “that just one year after college graduation, women were paid 82 percent of what their similarly educated and experienced male counterparts were paid.” This was true even after “accounting for college major, occupation, economic sector, hours worked, months unemployed since graduation, GPA, type of undergraduate institution, institution selectivity, age, geographical region, and marital status….”And that gap only widened as time passed.

So if the residual portion of the wage gap can’t be explained away by personal choices, is it just good, old-fashioned sexism? Surely that plays a role, as we’ve previously written about. But in her 2014 article for the American Economics Review, Goldin argues that after you’ve accounted for the discrimination, or personality difference (such as women’s lower ability to bargain or lesser desire for competition), one thing remains: how firms value certain kinds of productivity in the work place and either reward or penalize employees accordingly.

For some industries, the actual number of hours you work directly relates to the amount of money you earn. This is called linear earnings, and is demonstrated in the trades. “The whole ‘equal pay’ thing doesn’t work when you don’t have equal hours,” said carpenter Kina McAfee in the Chicago Tribune article.

This system of earning is also reflected in the hierarchy of the profession: managers are paid more because they have more duties in their position and thus are expected to work more. In these industries, Goldin notes the wage gap between genders is low.

But for other industries, the value of the work depends on the time it is done and its continuity. Pay is tied to the qualitative nature of those two factors rather than the actual quantity of work hours. In these industries there is a larger pay gap between men and women.

In some industries, all hours are not equal

Goldin’s thesis is that much of the legal industry operates on a nonlinear earning system where the value of a person’s work depends on the time it is performed and how continuous it is rather than simply the quantity of hours worked. The larger the law firm, Goldin notes, the more likely this is: “An individual with a law degree can be partner in a large law firm in which there is a premium for working long and continuous hours. The same lawyer could, instead, be employed as general counsel and work fewer and more flexible hours. Finally, the lawyer can work in a small firm that allows short and discontinuous hours at no penalty.”

Typically total hours worked is an accurate measure of time on the job. But often what counts in law firms and other companies with nonlinear earnings are the particular hours worked: “The employee who is around when others are as well may be rewarded more than the employee who leaves at 11 AM for two hours but is hard at work for two additional hours in the evening,” according to Goldin.

Thus, a “flexible schedule often comes at a high price, particularly in the corporate, financial, and legal worlds,” because companies impose harsher penalties on employees who want flexibility with their time, even if they’re working the same number of hours. Goldin notes that data “for MBAs and JDs shows large increases in gender pay gaps with time since graduation and also reveals the relationship between the increasing gender pay gap and the desire for time flexibility due to the arrival of children.”

Certain job characteristics also contribute to nonlinear earnings. Goldin’s research shows that jobs with certain characteristics (time pressure, contact with others, establishing and maintaining working relationships, highly structured work, and more discretion in work) amplify that system and penalize women more than men because these characteristics make it harder for an individual employee to have a perfect substitute for them when they’re out.

The legal profession rates highly with these kinds of characteristics: often an individual attorney’s work is so specialized to them—they’ve cultivated relationships with their clients, know certain cases inside and out, etc.—and they are under high-pressure time constraints. It is not easy for a firm to find a substitute for that attorney when they can’t be in the office because it is unlikely another attorney knows the work well enough to step in and deliver the same caliber of services.

When there isn’t another employee that can “perfectly substitute” for an absent worker, companies are more likely to have nonlinear systems because those systems reward employees with a certain kind of availability. What this all means, according to Goldin, is that “[d]ifferences in pay arise because of productivity differences in the workplace, not because of inherent differences in human capital across workers.”

Can structural change bridge the residual pay gap?

The good news is this residual category that affects wage gaps may be more within our control than say flat out discrimination. Goldin says the next step is to focus on how industries value and allocate employees’ work time. We have to change our culture to allow for “greater independence and autonomy” for our employees and efficient ways to “substitute seamlessly” for them when they need to be out.

Because much of the practice of law is becoming commoditized, there may be an opportunity to bridge some of the pay gap. Perhaps law firms can allow some team approaches to client service, an approach under which women thrive but is beyond the scope of this post.

What do you think?


Lindsey Lusk, our intern from the University of Illinois College of Law, contributed to this post.

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