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What would an Equal Pay World look like?

What would an Equal Pay World look like?

Last updated on: April 13, 2016 at 7:24 am by Jane the Actuary

What would an Equal Pay World look like? 2016-04-13T07:24:45-06:00 Jane the Actuary

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Here’s something I’d been meaning to write about, and which is timely with today having been labelled as #EqualPayDay:

According to a new McKinsey Report, as linked to by Slate, implementing “gender parity” in the United States would fuel an extraordinary leap in GDP growth.

What does this mean? And is it reasonable?

They identify 6 high-impact markers of inequality between men and women:

Differentials in representation in corporate leadership and management positions
Differentials in political representation
Differentials in amount of time spent on unpaid care
Rate of domestic violence perpetrated against women
Rate of single mothers
Rate of teen pregnancy

and 4 indicators in which the US scores at low to medium inequality on their metrics:

Differentials in labor-force participation rate
Differentials in professional and technical employment
Differentials in higher education
Rate of maternal mortality,

and created a hypothetical economic forecast based on a “best-in-class scenario in which each US state matches the state with the fastest rate of improvement toward gender parity in work over the past decade.” In this scenario, GDP would be 10% higher in 2025 than without these improvements.

First comment: GDP is not a measure of well-being. It is the measure of all goods and services produced in a country, that’s it. And, ironically, Bad Stuff can increase GDP, and Good Stuff can decrease it, if, for instance, a cure for cancer means that Americans need a lot less medical treatment. Second comment: four of their metrics are not differentials between men and women, but rates for women, without a comparison to men, so there is no defined measure of “gender equity.”

How does this boost happen?

By increasing women’s labor-force participation, as well as increasing their hours worked, and their representation in higher-paying fields. All the other metrics are incidental to this headline 10% claim.

To support an increase in women in the workforce, the report calls for “job creation” — which is taken for granted as something the government can readily achieve. Taking for granted that jobs will be available, increasing women’s labor force participation, from 74% of women ages 25 – 54 in 2014 to 76% in 2026, is modeled to account for 38% of the total potential increase in GDP.

Another 32% of the GDP boost is modeled to come from women moving from part-time to full-time work; on average, currently the average woman works 89% of the work hours of the average man. And 30% is modeled to come from raising female employment in higher-productivity sectors.

Before I get into the reasonableness of their modeling, you can guess my first reaction: there is nothing wrong with a woman choosing to work part-time, or not at all. To make it government policy, or the policy of think-tanks/policymakers, that as many women as possible should work full-time, is wrong. And I say that as a mother of three school-aged children: even though none of them requires the constant care of a small child, it makes life a heck of a lot easier for me to work part-time, and be home after school, supervising homework, managing the afterschool activities, getting dinner ready, etc.

To be sure, there are countries where women are flat out unable to particiate in the labor force — Saudi Arabia, from yesterday’s blog post, is an extreme example. But I tend to think that there’s a Goldilocks zone here, where families are able to make decisions that are right for them, some choosing full-time work for both parents, others a stay-at-home parent, and others part-time work or juggled schedules. To take it as a given that a moderate maternity leave followed by a return to full-time work, as is the norm in Scandinavia, for instance, is right and proper, and the goal of policy should be for this to be universal, is wrong. (And, even in European comparisons, part-time, not full-time work, has become the norm for Dutch women.)

But, for what it’s worth, let’s get back to the report, which states that their model is based on a supply-side perspective, that is, taking it for granted that the jobs will be there, or, rather, they say, “we acknowledge that the supply-side approach needs to be accompanied by demand-side policies that could influence the ability to create jobs to absorb additional female workers.” (p. 4 of the full report PDF) The report also ignores the potential impacts of costs or benefits of women working longer hours, or “any negative impact on male labor-force participation due to increased female participation” — that is, they ignore the possibility that mothers being prodded to work longer hours could mean fathers working fewer hours.

Recognizing that there’s no movement into the labor force without new jobs, and given the desire that women move into the “right kinds of jobs,” they create a scenario of hypothetical new job creation by 2025, modelling that 46% of the “new” workers will be in professional, business services, and information sectors, 14% in manufacturing, 11% in financial activities, and the remaining 29% in other sectors. Where this modeling comes from isn’t clear; these projection seem very removed from the real-world economy in which actual present-day workers experience stagnant wages. Oddly, they tout as potential lures back into employment for stay-at-home mothers “online talent marektplaces” which sound a lot like the poorly-paid “on-demand”/”sharing” economy that comes in for so much criticism elsewhere. The report refers often to “more investment” being needed, without addressing who, exactly, they envision doing the “investing.” The authors also, very generically, state that new jobs will require “addressing skill shortages.” All in all, there’s a very odd feeling that they perceive of the U.S. as a planned economy, and envision planners, of some sort or another, implementing recommendations.

The report also addresses the disproportionate amount of unpaid care work done by women. The authors write, “economists have emphasized the importance of recognizing, reducing, and redistributing unpaid work.” (p. 8) However, oddly, since the report looks at average hours worked, and assumes an incremental increase, they “solve the problem” of work time in part by assuming that men would “allocate more of their leisure time to helping out around the house” – a very strange failure to understand the actual lives of families behind those averages.

But they do acknowledge that the increase in full-time working mothers would largely be a matter of more children in childcare, which would, of course, provide more jobs for childcare workers, as well as elder care and care for the disabled, when it is those tasks which occupy nonworking women. The report takes the idealized view that in a perfect world these jobs would also be valued and high paying — do they presume that the government would be paying, and set these high pay rates because, in the future, it will be oozing with money?

So that’s the key first third of the report. The second third discusses social rather than economic indicators, and presents a number of graphs splitting out states and metro areas. And the last third proposes solutions of various kinds — delving into women in politics, teen pregnancy, domestic violence and sexual assault, though they never attempt to model the impact of improvements in these areas on GDP.

Also, incidentally, unless I missed it, they likewise don’t model a GDP impact of “pay equity” as commonly believed to be occurring, in the form of women facing outright discrimination and being paid less than men for the same jobs, or being denied promotions. Which makes sense — after all, GDP is not a direct measure of wages, and goods and services produced wouldn’t increase based solely on equalization. What’s more, even to the extent that pay inequities were explainable in this manner, one imagines that employers would keep total payroll the same — men’s salaries and women’s salaries would meet in the middle. Certainly, more women advancing to C-suite positions would also not increase the total number of C-suite positions available.

(By the way, as I typed this it felt familiar — almost exactly a year ago, I wrote about the flawed methodology of a study making a related claim, more specifically, that if the “gender gap” were erased, the poverty rate for working single mothers would be halved.)

So that’s that — it makes for some nice headlines, and presumably some marketing for the company and an “in” towards advising companies which have a “corporate social responsibility” goal of pay equity, but doesn’t really seem to advance knowledge or provide new insights.

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