SuperFreakonomics Book Club: Goldin and Katz on the Male-Female Wage Gap

In the SuperFreakonomics Virtual Book Club, we invite readers to ask questions of some of the researchers and other characters in our new book. Last week we opened up the questioning for Claudia Goldin and Lawrence Katz, labor economists and experts on the male-female wage gap. Their response is below. Big thanks to them and to all of you for participating.
Many thanks for your insightful comments and questions. If you are interested in more detail about gender differences in the labor market for MBAs you can read our paper (with Marianne Bertrand) entitled “Dynamics of the Gender Gap for Young Professionals in the Corporate and Financial Sectors.” Gender differences in the labor market for a range of professions are examined in “Transitions: Career and Family Life Cycles of the Educational Elite.”

If you consider only women/men that have roughly equal work experience, education level, hours worked, GPA, marital status, and number of children, is there still a wage gap? — Andy
When you compare “apples to apples” (i.e., a childless, college-educated 29-year-old female in an urban area to childless, college-educated 29-year-old man in an urban area), what’s the real wage discrepancy? — Lisa

These questions are at the core of our analysis. We actually do compare “apples to apples.” Here’s how: To determine whether there is “wage discrimination,” we statistically construct individuals who are observationally identical, and then measure whether their earnings differ by sex. Many data sets do not allow comparisons of approximately the same apples (Macs to Macs, for example). Some have such limited detail that the comparison is essentially “apples to oranges.” But our University of Chicago MBA data (for those graduating from 1990 to 2006) is extremely rich, allowing us to control for business school courses, GPA, job experience, demographics, hours, sector, occupational title, and so forth.
For male and female newly-minted MBAs, our comparison of “apples to apples” produces just a modest wage gap (favoring men), and these observationally equivalent men and women work approximately the same number of hours per week. Fast forward 10 to 15 years, and the earnings gap between our male and female MBApples is about 40% for those who were observationally equivalent at graduation. But almost all of that huge difference can be fully explained by the greater number of career interruptions and lower weekly hours experienced by the women (mind you, they still work a large number of hours). One of the reasons for the large gap in earnings between male and female MBAs is that the cost of career interruptions is very great in the corporate and financial sectors. These costs are considerably lower in medicine, and somewhat lower in law and academia (a finding from our related work).

Many of us – here’s the surprise – got our MBAs precisely because we wanted to have children and work, and we knew we wouldn’t be able to recover from the economic hit nearly as well unless we had an MBA to accelerate us back up the speed ramp when we re-entered the workforce post child-raising! In fact, one could argue that having an MBA helps on the pregnancy end too, with presumably higher skills and therefore occasionally higher leverage to negotiate a better childcare leave than we might have otherwise. — Lisa

The vast majority of MBA moms are just like Lisa – in the workforce, occasionally part-time, often self-employed, working for firms with generous family policies and making a lot of dough. They may not be making as much as their male peers who are working full-time, but they are, just as Lisa notes, doing very well in securing their futures and keeping a toe-hold in the business. In our sample, the fraction of MBA moms 10 to 16 years out who were working part-time was equivalent to the fraction who were no longer in the labor force. And about half of the part-timers were self-employed. Because we track our MBAs for at most 16 years, and because women are having kids much later in their lives, we do not know what happens to them over the long term, and whether those who leave the labor force will eventually return to the firm they left, other firms, new careers or self employment.

Are women being paid less because they take time off for kids, or are they being paid less because employers expect them to take time off for kids? If an employer puts you on the “mommy track” simply for being female, and pays you less or doesn’t promote you as often, perhaps when you do have a child, the fact that you’re already being paid less gives you less incentive to return to work. — sasha
Is there a pay gap before time is taken off? How much of that is due to the possibility of future time not worked? — Dan Rosenberry

As we just noted, at the start of their careers male and female MBAs in our sample earn approximately the same income, and almost all work long hours. We do not find evidence that women are placed on a “mommy track” from the start, or that there is a major pay gap before job interruptions for whatever reason. MBA women do very well in their jobs before they have children. Even after their first birth, they tend to return to work soon and work fairly long hours. But after a year or so the average MBA mom will shorten her hours of work (they are still long compared with most non-MBAs), and some will leave the workforce, possibly for a while. We also find that those who leave the workforce are disproportionately those with very high-earning husbands. Women with husbands earning below the median husband’s income in the sample exhibited no decrease in their employment. It is only those with the higher-earning husbands that do.

Having worked in many of the top banks those who are in charge are the ones who can shout louder and intimidate others, and decision making ability and skill may not be the criteria for advancement. — Harold Cline
Has anyone done a study on how women fare negotiating a salary? I also wonder if women have more difficulty negotiating a salary, because asking for a lot of money might seem aggressive or self-aggrandizing, or because an interviewer (male or female) might not believe that a woman is worth as much as a man. — vj
I had heard that when applying for jobs, men on average were much more likely to apply for a position that they did not meet 100% of the qualifications for, where as women tend to want to meet all stated criteria. I would assume this would also indicate women are less likely to sell themselves in interviews, salary negotiation (or may even make them less likely to think to negotiate salary), or performance reviews. Have you included this in your research? — ktb

Our work only indirectly confronts the important issues of competition and bargaining. Important scholarship by others addresses these questions directly. A great book on the topic of women’s bargaining power on the job is Women Don’t Ask (Princeton 2003) by Linda Babcock and Sarah Laschever. They find that new MBAs who negotiate rather than accept their offered salary raise their pay by around 7%, and that MBA men negotiate eight times as often as MBA women. Where does that show up in our work? We do find that even women without children and with no career interruptions earn about 12% less than the observationally equivalent men (the “apples to apples” comparison) both at the beginning of their careers and 10 to 16 years after obtaining their MBA. There is also excellent research on the subject of competitiveness among men and women by Muriel Niederle, and various co-authors, using laboratory experiments. They find that women shy away from competitive situations, losing income in the process, whereas men over-compete, also losing some income by being overconfident.

Are there fields or areas you would recommend your daughters pursue? Avoid? — Hillary

First of all, your daughters (and sons) should follow their passions wherever that might take them (law, medicine, art, poetry, lion taming). But they should also be cognizant of the potential costs in each field from taking time off and reducing hours. Each occupation has its own culture, and some are highly tolerant of individual needs and some are less tolerant.
It should also be recognized that these tradeoffs have changed enormously over time, and that it is difficult to predict what the future will hold. Who would have guessed in 1970 that various MD specialties today would have a large fraction of part-time physicians? More than 35% of all female pediatricians work part-time today, for example. As women become a critical mass in various professions, more pressure will be placed on institutions to change their rules. In some occupations, however, the rules won’t budge much. A trial lawyer who is present at each deposition, hearing, and trial day is far more valuable to the client than one who shares the case with a partner. But an obstetrician does not have to be present at every birth for each female client in his or her group practice. Another in the group will be an (almost) perfect substitute.

What careers have the most equal pay for women, and which ones have the widest gaps in pay? — Mario

Don’t be misled by gender equality in pay. Women should not necessarily want to choose the occupation for which the gender gap is the lowest. In fact, the most equal occupations by pay are those in which there is low pay and little advancement.

So you’re saying that men don’t love kids? From the article – “The big issue seems to be that many women, even those with MBAs, love kids.” — Kathleen

We never said that men don’t love their kids (or other people’s kids). In fact, we never said that MBA moms love their kids. But we are fairly certain that they do. (Beware literary license taken by Freakonomists.)

Perhaps one of the reasons more women take time off work for kids more often than men is because they’re already making less in their job. The lower pay might be the cause instead of the effect. — KarenS

For many women (and men) a lull in one’s career is a good moment to take time off for additional training or to raise a family. Since women often make less than men, are kids the cause of their lower earnings or the result? Our study is limited to MBA women and men. The MBA women who had kids after receiving their MBA were not earning less than other women before they had their kids. And these MBA women at the start of their careers were not doing that much differently than were MBA men. We noted before that MBA women who never had kids and had no job interruptions made 12% less than observationally equivalent men. That difference, moreover, was mainly because they were employed by smaller firms, and disproportionately in the non-profit sector. Even though we find little evidence to support the notion that lower earnings of MBA women cause them to have kids, the point is critical to understanding the division of labor in the household more generally.