Can’t Buy Me Gender Equality
President Trump just rescinded an Obama administration policy aimed at closing the economic gap between men and women. The measure would have required companies to collect data on pay differences between genders and races.
It’s tempting to see the move as dismissive of the gender disparities in our economy. But that’s a mistake.
The data certainly show that men and women do not enjoy equal economic outcomes. But it’s far from obvious that this inequality results from systemic unfairness — or that the government needs to take action to rectify the situation.
Men and women tend to possess divergent career preferences, personal goals, and attitudes towards financial risk. Given those differences, it would be surprising if pay and wealth didn’t vary dramatically by gender. And since these disparities are largely the product of the free choices of individuals, government action to reduce them is more likely to generate injustice than prevent it.
The typical working woman earns roughly 80 cents for every dollar earned by a typical man, according to the U.S. Census Bureau. The gender wealth gap is even more pronounced. By one estimate, the median single woman has only 32 cents of wealth for every dollar accumulated by the median single man.
Some argue that the very existence of such disparities is an insult to gender equality — and demands immediate redress. The recently established Closing the Women’s Wealth Gap initiative identifies its eponymous goal as nothing short of “a national imperative.”
But neither statistic represents an open-and-shut case for government action. There are a number of legitimate reasons why pay and wealth might accrue to one person and not another.
Take profession. Men and women tend to pursue different careers — careers that vary widely in compensation. According to the Bureau of Labor Statistics, the most common jobs for women include relatively lower-paying positions like administrative assistant and elementary school teacher. Men, on the other hand, are more likely to engage in higher-paying jobs like software applications developer and personal financial advisor.
A recent study by Cornell University economists Francine Blau and Lawrence Kahn estimated that workers’ choice of industry and job accounts for more than 50% of the pay gap. Another 14% likely flows from differences in experience.
Federal statistics also reveal that employed women tend to work fewer hours than men.
What’s more, women don’t always pay a financial penalty for putting in less work. Professional sports provide the most glaring example. Male and female tennis players compete for the same amount of prize money at Grand Slam events, even though men play best-of-five sets in these tournaments, and women best-of-three.
Non-monetary compensation also accounts for some of the pay disparity. A 2008 study in the Journal of Labor Economics found that women were more likely than their male co-workers to enjoy “family-friendly” fringe benefits like parental leave and child care.
Add up these data points, and it turns out that perfectly benign reasons account for nearly all of the gender pay gap.
That pay gap, of course, also explains much of the gender wealth gap. Women earn less over the course of their careers than men, so they have less to save.
But there are other important factors at work. For starters, men tend to invest more aggressively than women. A recent survey by the investment firm Blackrock found that women are less willing to accept greater investment risk in order to achieve higher returns. Conversely, men are more likely to invest in stocks and tend to place more value on increasing their wealth.
Such divergent investing practices may reflect much deeper differences regarding money in general. For most women, the idea of “wealth” goes far beyond money, according to data from the latest Charles Schwab Modern Wealth Index.
More than 60% of women value physical health more than having large quantities of money. When determining what counts as wealth, women also place more emphasis on peace of mind, gratitude, and relationships.
Career choice, investing behavior, attitudes toward money — these are precisely the things that ought to determine a person’s wealth in a free and just economy. Decidedly unjust are reforms that would redistribute wealth in the service of a utopian desire for strict material equality between men and women.