Rejoinder to @geoffsimmonz and Jess Berentson-Shaw on are we all sexists – Part 1

Morgan Foundation researchers Jess Berentson-Shaw and Geoff Simmons were good enough to write a long reply to my recent post on the role of unconscious bias in the gender wage gap. My post was in reply to a Friday whiteboard session by Geoff Simmons.

I thought the best way to start is to summarise their reply in terms of how my rejoinder will be structured:

  1. There is a persistent, known but unexploited entrepreneurial opportunity for pure profit arising from employers not hiring women on merit because of an unconscious bias against them. This unconscious bias among employers against women explains 20-30% of the gender wage gap. Most of the rest of that gap is due to factors such as differences in occupation and education.
  2. The gender wage gap is smaller at the bottom of the labour market because of the minimum wage.
  3. The gender wage is smaller in the middle than at the top of the labour because of “far more standard contracts in the middle”. I take this to mean recruiting firms set a hiring standard and make a wage offer. This does not mean they have a free hand in their wage posting. A higher wage offer attracts better qualified applicants. Posting a low wage attracts fewer candidates that meet their hiring standard from other jobs and from the ranks of the unemployed. The available evidence suggests that one-third of job matches are based on wage bargaining and two-thirds through wage posting. Wage posting is more common in larger firms, the public sector and where there is collective bargaining. Wage bargaining is more profitable for occupations and jobs with a high dispersion in workers’ skills and productivity and in tighter labour markets.
  4. The gender pay gap is largest for the top 10% of female wage earners because “…  what scientific evidence supports the argument that better paid women have the ability to negotiate pay & conditions better? The very fact that there is a consistent and large gap between highly paid men and women suggests that where MORE negotiation, discretion, more complex selection processes are involved the more women are discriminated against”. The available evidence is wage posting is less common the more skilled is the worker. It pays to invest more in scrutinising recruits against hiring standards and to consider offer matching when the wage is higher for applicants and for employees threatening to quit. The payoff from a longer job search is greater the higher is the wage. There is a greater chance of higher skilled jobseeker of finding a better paid match between their more idiosyncratic skills and backgrounds in vacancies elsewhere or which might appear later. Low skilled jobseekers invest less in job search because one vacancy is frequently as good as another in their occupational and industry labour markets. The higher skilled are also more geographically mobile than the low skilled and more likely to live in cities and earn the urban wage premium.
  5. “Better paid professional women may have more options than lower paid women but they still have fewer than their male equivalents.” I take this to mean the greater the ability of workers to move from employer to employer, the better are they paid. Women have a weaker average attachment to the labour market. The human capital interpretation of this is woman and mothers in particular have lower productivity because they have spent less time accumulating on-the-job human capital. In the search and matching interpretation, women have less search capital. Workers start out as job shoppers: the longer a worker shops around, the more likely after a succession of job matches that they chance upon better paying job and occupational matches. Women through career interruptions for motherhood spend less time in the labour market, accumulate less search capital and are therefore are paid less. Women find it harder to work their way into the better-paying job matches.
  6. “Removing unconscious bias requires cultural change and will take time to resolve but it is possible to do with concerted effort.” This as example of what Adam Smith called the overweening conceit of youth.

My reply to the original Friday whiteboard session by Geoff Simmons relied on invisible hand explanations. Nozick argued that invisible hand explanations of social phenomena must have a filter and an equilibrating mechanism.

Geoff Simmons’ hypothesis about the gender wage gap is an invisible hand explanation: 20-30% of the gender wage gap is driven by unconscious bias. There could be no greater an invisible hand than an unconscious one.

There must be a mechanism in Geoff Simmons’ hypothesis that guides market participants to not hire and not promote women on merit. Not hiring on merit forfeits profit. There must be a filter that penalise hiring on merit.

The market has a filter and an equilibrating mechanism that constitute its invisible hand. The equilibrating mechanism – the mechanism that prompts people to hire on merit – is price signals. Prices are a signal wrapped in an incentive. If prices go up, buy less and look for other options, if they go down, buying more is profitable. The filter, which is more of an invisible punch than an invisible hand, is profits and losses. Higher costs, lower profits, loss of market share, insolvency and bankruptcy drive out the entrepreneurs who fail to hire on merit.

Entrepreneurs that hire on merit are more likely to survive in market competition than those that do not. Entrepreneurs must adapt or die.

There is no similar institutional filter in Geoff Simmons hypothesis to ensure that not hiring on merit is the unintended outcome from the decentralised behaviour of countless employers and job seekers trying to improve their own circumstances. Self-interested employers are not prompted by price signals to not hire on merit. More importantly, their chances are surviving in market competition are increased rather than are reduced if employers resist the temptations arising from their unconscious biases against women.

This institutional context is the reverse of what should be for unconscious bias against women to survive in market competition as suggested by Geoff Simmons. Firms that hire on merit should have a lower probability of survival, not a higher chance of staying in business if the unconscious bias hypothesis is to prevail in the face of market competition.

Geoff Simmons and Jess Berentson-Shaw is they didn’t address my extensive comments about the market as an evolutionary process. They did not explain how market competition would not penalise employers who fail to hire on merit for any reason including unconscious bias. That is the fundamental flaw, a fatal flaw in their reply to my comment on their Friday whiteboard session.

Most of all, Geoff Simmons and Jess Berentson-Shaw succumb to what Robert Nozick christened normative sociology. This is the study of what the causes of social problems ought to be.


For Geoff Simmons and Jess Berentson-Shaw, the gender wage gap ought not be the result of the conscious choices of women making the best they can do what they have. The gender wage gap must be the result of the bad motivations of employers and other external forces. The bad motivations must be unconscious because conscious prejudice is rare these days.

The unconscious bias hypothesis suffers from the same floors as the occupational crowding and occupational segregation hypotheses. Neither the unintentional bias hypothesis nor the occupational crowding and segregation hypotheses have a filter and an equilibrating mechanism that guides employers into make unprofitable choices about hiring. These hypotheses must explain how unconsciously biased employers survive in competition with less unconsciously biased employers.

Central to Gary Becker’s theory of prejudice based discrimination is competition in the market will slowly wear down prejudice-based discrimination in the same way that it drives out any other practices inconsistent with profit maximisation and cost minimisation. Profit maximisation gets no respect in the theory of unconscious bias and the gender wage gap put forward by Geoff Simmons and Jess Berentson-Shaw.

If there are sufficient number of less unconsciously biased employers, there will be segregation. Some employers will hire a large number of women because they have the pick of the crop and will be more profitable to boot at least in the short run.

The more unconsciously biased employers will have a large number of men working for them and will be less profitable and more likely to fail. At worst, men and women will be paid to same but most women will work for these less unconsciously biased employers. The possibility of labour market segregation rather than gender wage gap was not considered in the unconscious bias hypothesis.

Unconscious bias is a preference-based explanation of the gender wage gap. The young are the last to notice the rapid social change that came before them. Cultural and preference based explanations underrate the rapid social change in the 20th century. As Gary Becker explains:

… major economic and technological changes frequently trump culture in the sense that they induce enormous changes not only in behaviour but also in beliefs. A clear illustration of this is the huge effects of technological change and economic development on behaviour and beliefs regarding many aspects of the family.

Attitudes and behaviour regarding family size, marriage and divorce, care of elderly parents, premarital sex, men and women living together and having children without being married, and gays and lesbians have all undergone profound changes during the past 50 years. Invariably, when countries with very different cultures experienced significant economic growth, women’s education increased greatly, and the number of children in a typical family plummeted from three or more to often much less than two.

Goldin (2006) showed that women adapted rapidly over the 20th century to changing returns to working and education as compared to options outside the market. Their labour force participation and occupational choices changed rapidly into long duration professional educations and more specialised training in the 1960s and 1970s as many more women worked and pursued careers. The large increase in tertiary education by New Zealand after 1990 and their move into many traditionally male occupations is another example.

The main drivers of the gender wage gap are unknown to recruiting employers such as whether a would-be recruit is married, how many children they have, whether their partner is present to share childcare, how many of children are under 12, and how many years between the births of children. Spacing out the births is a major driver of the gender pay gap but this information is unknown to employers when hiring. As Polachek explains:

The gender wage gap for never marrieds is a mere 2.8%, compared with over 20% for marrieds. The gender wage gap for young workers is less than 5%, but about 25% for 55–64-year-old men and women. If gender discrimination were the issue, one would need to explain why businesses pay single men and single women comparable salaries. The same applies to young men and young women.

One would need to explain why businesses discriminate against older women, but not against younger women. If corporations discriminate by gender, why are these employers paying any groups of men and women roughly equal pay? Why is there no discrimination against young single women, but large amounts of discrimination against older married women?

… Each type of possible discrimination is inconsistent with negligible wage differences among single and younger employees compared with the large gap among married men and women (especially those with children, and even more so for those who space children widely apart).

The main drivers of the gender wage gap are of no relevance to entrepreneurs making a profit. These findings are devastating to the notion that there is some sort of discrimination against women on the demand side of the labour market.

Employers lack the necessary information to implement any unconscious bias they might have against women in fact is mainly a bias against older women and mothers and mothers in particular the space out the births of their children. The emergence of the gender wage gap is through the supply-side choices of women because employers lack the necessary information to drive the emergence of a gender pay gap.

The career cost of a family is central to the emergence and size of the gender pay gap because it leads to self-selection on the supply-side in terms of human capital to mitigate the cost of careers breaks.

The gender gap is fairly minor before the age of 30. The female full-time employment rate drops by 10 percentage points after women enter their 30s before recovering by the time women reach the age of 50 (Johnston 2005). The gender wage gap also widens between the ages 35 to 64 when women are raising children; the biggest gap is for the ages of 44 to 44; a wage gap of 22 per cent (MWA 2010). The first child is estimated to reduce New Zealand female earnings by 7 per cent and second child reduces earnings by 10 per cent (Dixon 2000, 2001).

This self-selection of females into occupations with more durable human capital, and into more general educations and more mobile training that allows women to change jobs more often and move in and out of the workforce at less cost to earning power and skills sets. Chiswick (2006) and Becker (1985, 1993) then suggest that these supply side choices about education and careers are made against a background of a gendered division of labour and effort in the home, and in particular, in housework and the raising of children. These choices in turn reflect how individual preferences and social roles are formed and evolve in society.


Source: On Equal Pay Day, key facts about the gender pay gap | Pew Research Center.

Tiny differences in comparative advantage such as in child rearing immediately after birth can lead to large differences in specialisation in the market work and in market-related human capital and home production related work and household human capital (Becker 1985, 1993). These specialisations are reinforced by learning by doing where large differences in market and household human capital emerge despite tiny differences at the outset (Becker 1985, 1993).

Many women choose educational and occupational paths that give them more control over their hours worked, and lowers the cost of time spent on maternity leave and the associated depreciation of skills during career breaks and reduced hours (Polachek 1978, 1981; Bertrand, Goldin and Katz 2010; Katz 2006; Sasser 2005). Women over the entire run of the 20th century often end up in jobs that reduced the career cost of a family and rapidly changed their plans when new opportunities emerge (Katz 2006).

The prospect of children drives the early choices of women on education and occupations. Careers requiring continuous commitment, long hours and great sacrifices do not attract and retain as many women (Bertrand, Goldin and Katz 2010; Goldin 2006). Goldin and Katz (2011) found that differences in the reductions on the cost of career breaks was a major driver in the influx of women into previously male dominated occupations.

The key is what drives the rapid changes in the labour force participation and occupational choices of women. Some of the factors are global technology trends such rising wages and the emergence of household technologies and safe contraception and antidiscrimination laws. All of these increased the returns to working and investing in specialised education and training.

Up until the mid-20th century, women invested in becoming a teacher, nurse, librarian or secretary because these skills were general and did not deprecate as much during breaks. When expectations among women of still working at the age of 35 doubled, there were massive increases in female labour force participation and female investments in higher education and specialised skills (Goldin and Katz 2006).

In summary, Geoff Simmons and Jess Berentson-Shaw put forward an invisible hand explanation of the residual in the gender wage gap that lacks that all-important invisible punch. There is no market mechanism which penalises employers who rise above their unconscious bias against women to hire on merit. The invisible hand rewards employers that hire on merit with higher profits and penalises those that indulge a bias of whatever origin. The invisible hand consists of an invisible finger and an invisible punch. The invisible finger points the way forward through price signals; the invisible punch slaps down those entrepreneurs whose attentions wander from their bottom line when deciding who to hire and promote.

Part two of this reply will address the particulars of the reply of Geoff Simmons and Jess Berentson-Shaw. In particular, the search and matching aspects of their explanation and whether we are all sexists.

Gary Becker and Kevin Murphy on inequality and growth in living standards

Image

Gary Becker explains the economics of crime

The amount of crime is determined not only by the rationality and preferences of would-be criminals, but also by the economic and social environment created by public policies, including expenditures on police, punishments for different crimes, and opportunities for employment, schooling, and training programs.

Image

Gary Becker summarises the analysis of human capital

Human capital analysis starts with the assumption that individuals decide on their education, training, medical care, and other additions to knowledge and health by weighing the benefits and costs. Benefits include cultural and other non-monetary gains along with improvement in earnings and occupations, while costs usually depend mainly on the foregone value of the time spent on these investments.

Image

More on More Efficient Tax Systems Leading to Bigger Government

…in Deadweight Costs and the Size of Government (NBER Working Paper Number No. 6789) , [Gary Becker and Casey Mulligan] conclude that flatter and broader taxes also tend to encourage bigger government because taxpayers offer less resistance to increases in flat tax rates than in rates of more onerous and less efficient forms of taxation.

Any decline in the resistance of taxpayers leads to larger government budgets since an endless number of groups agitate for greater government support.

Flat tax rates, such as the VAT and Social Security taxes on earnings, usually start at very low levels but invariably increase over time.

The VAT is now 20 percent and higher in some countries. And payroll taxes began at a modest 2 percent in the 1930s in the United States, but have been increased 21 times to the present 15 percent combined rate on employees and employers.

via More Efficient Tax Systems Lead to Bigger Government.

Gary Becker: Fear, Technology, & Education

More Efficient Tax Systems Lead to Bigger Government

 

A Conversation with Gary Becker: The Future of US Economic Policy

Human Capital, Development, and Growth | Lars Peter Hansen, Edward Glaeser, Claudia Goldin and Robert Lucas

Impact of the Work of Gary S. Becker | James Heckman

The Economics of Crime and the Law| Levitt, Landes, Mulligan and Peltzman reflect on Gary Becker’s legacy

Conversations with History: Gary Becker (May 2, 2013)

The day that sex discrimination died – Solomon Polachek on the gender wage gap

Solomon Polachek was minding his own business back in 1975 looking for evidence to show occupational crowding and that women were pushed into low paid occupations by sex discrimination, and in particular, employer discrimination. About 60 per cent of women still work in just 10 occupations. the occupations which are female-dominated are often relatively poorly paid jobs

By chance, Polachek departed from the usual empirical strategy for estimating the male-female wage gap at that time.

Rather than include a dummy variable to estimate discrimination after various factors have been taken into account, he introduced dummy variables that took account of both gender and marital status. His results were startling.

He previously was able to explain about 35% of the wage gap using the data at hand and variables he was using.

This 35% gap dropped to 18% for single never married males and females, but his ability to explain the gender wage gap increased dramatically to over 60% for married spouse present males and females.

What more, the presence of children exacerbated the gender wage gap. Each child of less than 12 years old widened the female male pay disparity by 10%. Furthermore, large spacing intervals between children widened this gender wage disparity even further.

Subsequent research showed that marital status had the same effects on gender wage gaps in Germany, the UK, Austria, Switzerland, Sweden, Norway and Australia. Factors associated with dropping out of the labour market to care for children could explain up to 93% of the gender wage gap.

These findings are devastating to the notion that there is some sort of discrimination against women on the demand side of the labour market. As Polachek explains:

The gender wage gap for never marrieds is a mere 2.8%, compared with over 20% for marrieds. The gender wage gap for young workers is less than 5%, but about 25% for 55–64-year-old men and women.

If gender discrimination were the issue, one would need to explain why businesses pay single men and single women comparable salaries. The same applies to young men and young women.

One would need to explain why businesses discriminate against older women, but not against younger women. If corporations discriminate by gender, why are these employers paying any groups of men and women roughly equal pay?

Why is there no discrimination against young single women, but large amounts of discrimination against older married women?

… Each type of possible discrimination is inconsistent with negligible wage differences among single and younger employees compared with the large gap among married men and women (especially those with children, and even more so for those who space children widely apart).

The main drivers of the gender wage gap is simply unknown to employers such as whether the would-be recruit or employer is married, their partner is present, how many children they have, how many of these children are under 12, and how many years are there between the births of their children. These are the main drivers of the gender wage gap – all of which are factors totally unknown to employers and of no relevance to them in making a profit.

The drivers of the gender wage gap on the supply side of the labour market regarding the choices women make about having children, when they have children, and how this influences their investment in human capital, and in particular, in human capital that does not depreciate by that much because of intermittent labour force participation due to motherhood.

Occupational crowding hypotheses of the gender wage gap have the drawback of being an invisible hand explanation of social outcomes. Each individual, acting only to best secure her own rights and interests, act in such a way that the unintended outcome of a complex social interaction.

The specific unintended outcome that must arise from millions of choices of people acting in their own interest  throughout their lives is occupational segregation.

The market process of the invisible hand has both a filter and  and equilibrating mechanism. The filter is profits and loss to exclude through insolvency and bankruptcy those entrepreneurial choices that do not further consumer’s interests. The equilibrating mechanism – the mechanism that tells people which choices they should make – is price signals. Price signals guide individual choices towards the unintended outcome.

Those that argue that women are socialised to make particular choices such as mother were not paying attention to the 20th century and the radical social change over the course of that century, in particular in the role of women. As Gary Becker explains:

… major economic and technological changes frequently trump culture in the sense that they induce enormous changes not only in behaviour but also in beliefs.

A clear illustration of this is the huge effects of technological change and economic development on behaviour and beliefs regarding many aspects of the family.

Attitudes and behaviour regarding family size, marriage and divorce, care of elderly parents, premarital sex, men and women living together and having children without being married, and gays and lesbians have all undergone profound changes during the past 50 years.

Invariably, when countries with very different cultures experienced significant economic growth, women’s education increased greatly, and the number of children in a typical family plummeted from three or more to often much less than two.

 

Rational Criminals and Profit-Maximizing Police

via Rational Criminals and Profit-Maximizing Police.

Actual discrimination in the marketplace depends on the combined discrimination of employers, workers, customers, schools and governments – updated

A literature has developed on whether discrimination in the marketplace due to prejudice disappears in the long run. Whether employers who do not want to discriminate will eventually compete away all discriminating employers depends not only on the distribution of tastes for discrimination among potential employers, but critically also on the nature of firm production functions.

Of greater significance empirically is the long run discrimination by employees and customers, who are far more important sources of market discrimination than employers. There is no reason to expect discrimination by these groups to be competed away in the long run unless it is possible to have enough efficient segregated firms and effectively segregated markets for goods.

Gary Becker (1992).

When the disfavoured group had few members, the wage difference between the favoured and disfavoured would be very small or non-existent because they could find employers who had little distaste for working with them. For example, African-Americans suffered more from discrimination than did Jews because blacks constituted a much larger population. Becker explains:

Employee discrimination against minority fellow workers-such as a male worker who does not want to work for a female boss- cannot be so easily competed away by non-discriminating employers. For they have to pay discriminating employees more, perhaps a lot more, to work with minority members. A similar argument applies to consumers who do not want to be served by particular minorities…

Segregation can serve as a way to bypass the prejudices of other workers, consumers, and employers. When Jews could not get work in the banking industry at the turn of 20th century, they began to open their own banks that hired mainly other Jews. African-American doctors and dentists in the old South catered to other blacks as their patients

Competition from more rational firms might gradually eliminate employer discrimination, market forces alone would rarely erode discrimination rooted in the tastes of workers or consumers.

The market will not compete away customer discrimination because the market is good at giving customers what they want. It is not necessarily possible for disfavoured groups simply  to take jobs where there is no customer contact, particularly if they are large in number relative to the total population. It is also the case the customer discrimination is largely immune from antidiscrimination laws except in blatant cases.

Customer discrimination results in employment segregation, which adds further to the job search costs of minorities as they must find jobs with less customer contact. This lowers their asking wages to save on job search costs and time unemployed.

Customer discrimination can linger because their attitudes may change only slowly, and the preferences of a wide group of individuals may need to change.

An entrepreneurial opportunity arises to those entrepreneurs who are first to alert insert murders of the costs of the prejudice. This is a far more successful way of bringing racial segregation and discrimination to an end. Entrepreneurs put an explicit price on  each and every form of discrimination wherever it might be. 

In professional sport, for example, racial integration came from entrepreneurs risking the loss of some of their existing fans in return for the anticipated cost savings and greater commercial and sporting success from hiring talented minorities and foreigners. Consumer prejudices were eroded by entrepreneurship.

The art of business consists of identifying assets in low-valued uses and devising ways to profitably move them to higher-valued ones. Entrepreneurs profited from finding ways to eliminate discrimination as quickly as possible.

Previous Older Entries

New Historical Express

(Formerly Hatful of History)

Economics in the Rear-View Mirror

Archival Artifacts from the History of Economics

CAMERA UK

COMMITTEE FOR ACCURACY IN MIDDLE EAST REPORTING AND ANALYSIS

Truth on the Market

Scholarly commentary on law, economics, and more

Stockerblog

Philosophy, Politics, Culture from Barry Stocker, British philosopher based in Istanbul

Organizations and Markets

Economics of organizations, strategy, entrepreneurship, innovation, and more

John Quiggin

Commentary on Australian and world events from a socialist and democratic viewpoint

The Antiplanner

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Pedestrian Observations

For Walkability and Good Transit, and Against Boondoggles and Pollution

Manhattan Contrarian

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Bet On It

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Trade Diversion

Commentary on development, globalization, and trade by Jonathan Dingel.

Movie Nation

Roger Moore's film criticism, against the grain since 1984.

Conversable Economist

In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”

AwayPoint

Between An Island of Certainties and the Unknown Shore

Why Evolution Is True

Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.

Weapons and Warfare

History and Hardware of Warfare

fportier.wordpress.com/

Franck Portier's professional page

NZCPR Site

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Breaking Views

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Anti-Dismal

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Peter Winsley

Economics, and such stuff as dreams are made on

Bowalley Road

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

History of Sorts

WORLD WAR 2,EIGHTIES,MUSIC,HISTORY,HOLOCAUST

Tudor Chronicles

News, reviews and talk all about the Tudors

Karl du Fresne

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Roger Pielke Jr.

an undisciplined academic - @RogerPielkeJr on Twitter

Great Books Guy

Reading The Classics

@STILLTish. Gender Abolition

Examining Gender Identity ideology and its impact on Women's Sex based rights and Gay Rights. Exploring how this has taken such firm root in Western societies (Cognitive & Regulatory Capture).

200-Proof Liberals

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

What Paul Gregory is Writing About

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Offsetting Behaviour

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

JONATHAN TURLEY

Res ipsa loquitur - The thing itself speaks

Adventures of a Tudor Nerd

Exploring the 16th Century and Beyond

Conversable Economist

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Barrie Saunders

Thoughts on public policy and the media

The Victorian Commons

Researching the House of Commons, 1832-1868

Coyote Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The History of Parliament

Blogging on parliament, politics and people, from the History of Parliament

Books & Boots

reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

%d bloggers like this: