(This is one of a series of posts on the wage gap.)
On page 16 of the anti-feminist economics handbook Women’s Figures, the authors explain that “if women were only paid seventy-four cents on a man’s dollar, then a firm could fire all its men, replace them with women, and have a cost advantage over rivals.” This argument – or some variation of it – is commonplace among anti-feminists (for another example, see Warren Farrell’s discussion in his book The Myth of Male Power).
This argument sounds logical enough – so long as we assume that no other factors aside from the wage gap are operating. But in the real-world economy, other factors are always operating. (Curiously enough, this flawed logic can be used to “prove” not only that discrimination against women doesn’t exist, but also that racial discrimination doesn’t exist, and furthermore that neither racial nor sexual discrimination has ever existed.)
Some industries have, in effect, saved money by gradually replacing a male work force with a female work force. But there are many reasons employers might retain a male workforce, even though the pay gap means that men are paid more on average.
Why employers would retain a male work force.
If the only thing in the world to think about was the gender pay gap, no doubt many employers would look for ways to immediately replace their male workforces. But that’s not how things work in the real world. Employers have many compelling reasons not to fire all the men; here are just a few.
- To deliberately replace male workers with female workers in order to save money (rather than letting market forces do the same thing more gradually) is a sure way to get sued.
- The female workforce is not infinite; there aren’t enough women to fill all the jobs in the US currently held by men, in addition to the jobs women already have.
- Many industries have union contracts to contend with.
- The transition costs of replacing all one’s male employees (especially in male-dominated workplaces) may well be higher than the costs of the wage gap; hiring and training new workers is very expensive.
- Those transition costs are even higher when you consider how unhappy and unmotivated the men will be to train their female replacements.
- Customers in some industries may prefer to be waited on by men (customer-level discrimination is one theory as to why high-price restaurants prefer male servers).
- The employer may simply be prejudiced, and thus willing to pay the extra price to avoid employing women in some positions (this is conservative economist Gary Becker’s theory).
- The employer has community relations – and customer relations – to worry about.
For all these reasons and more, the fact that men still find employment is no proof that discrimination doesn’t exist.
Chicken and egg: women replacing men just as wages drop.
Even though employers have strong motivations not to replace male workers with female workers, it still has happened occasionally – although not in the tidy and unrealistic way pay gap critics suggest. When it happens, it’s not a conscious process, but rather the normal workings of a free-but-imperfect market (which makes it hard to recognize that such a thing has happened until it’s over). So in the 1980s, for example, insurance companies cut wages (or allowed inflation to lower wages), and over the same period insurance adjusters changed from a mainly-male occupation to a mainly-female occupation.
Historically, this process has happened many times; for instance, schoolteacher wages dropped as towns discovered that hiring a schoolmarm was cheaper than hiring a male teacher. Similarly, secretarial wages plummeted as that occupation became female-dominated. In a well-documented example, bank tellers changed from a male-dominated to a female-dominated occupation as wages (and prestige) dropped.
So which comes first, wages dropping, or women joining an occupation? This is a chicken-and-egg question. The adjustment from a male workforce to a female workforce is gradual; both changes happen together. A vicious cycle is formed; as more women join the occupation, wages get lower; and as wages get lower, fewer men apply for the job, increasing the proportion of women.
A misunderstanding of what the wage gap actually measures
Finally, the why-don’t-they-fire-all-the-men argument is based on a severe misunderstanding of the wage gap. Contrary to this argument’s assumption, the wage gap does not primarily measure difference in pay between women and men in identical jobs. Read my earlier entry What Causes the Pay Gap? for more information.
Postscript: James (of Hobson’s Choice), responding to Duane (of The Forest for the Trees) in the comments to an earlier post, took a different approach to rebutting this same argument. I hope James won’t mind if I reproduce his comments here:
There are at least two reasons why this is not true. The first is that the labor market is not the same as the market for–say–milled sugar. Discrimination by gender may occur inadvertantly because employers use it to reduce “search” costs, which reflects network externalities to hiring male employees. This is a standard problem in labor markets, which are notoriously inefficient. Not only that, but consider the cultural obstacles of a woman in a job search. Women are barred in nearly all cultures (including ours) from being aggressive in certain situations, yet aggressiveness is usually a decisive factor in selling one’s labor.
The other reason the argument doesn’t work is that labor markets are segmented. In theory, a market where laborers have unlimited movement between markets for which they are qualified, and where good information exists about prices, etc. would not be segmented. Competing firms would have every reason to hire workers from a “global pool” which included women. Discrimination would only harm the discrimator.
But in the world where we live, segmented labor markets can benefit the entrepreneur (in the sense that not discriminating against workers is not part of a Nash Equilibrium). The reason for this is that in most labor markets there is an oligopoly in each sector (e.g., there are only two department stores in my neighborhood) and an oligopsony in each labor market (i.e., there are at most only three plausible employers for a given worker at a given time). Now, because the firm is an oligopoloid firm it will produce at a point where its marginal cost curve intersects its marginal revenue curve. And because it is a monopsony in the labor market, it will hire more workers where the marginal revenue product of new workers is equal to the marginal expense of labor. (The marginal expense of labor is more than the marginal cost because a monopsonoid firm–yes, I spelled that correctly–is increasing the cost of labor as it hires more workers, just as a monopoloid firm lowers the price of its product by producing more).
Both attributes allow employers to make more profits in a segmented labor market than a non-segmented one. And as a result of game theory, which requires more explanation than I want to go into here, it is highly likely that in a realistic labor market discrimination will occur if it is the cultural norm.
You missed a fairly-frequently-adduced reason, Amp: “She’s just gonna get pregnant and leave.” Though I suppose you could lump that one under “prejudice.”
Thanks for posting that, Ampersand! Also, I posted a pair of essays with charts. Hope the charts explain it a little better. I learned a lot from reading this series.
Wage Gap Series (Mono-a-Mono!)
More on Labor Markets
I didn’t really explain game theory’s role because I was in the process of reading Theory of Games for Applied Economists, where they were explaining Nash Equilibria for large numbers of “players” (such as the national population, or a cluster offirms in an industry).
The role of social norms in economic discrimination is something like this: there’s a possibility an employer could rupture a sexual (or racial) barrier, leading to a Nash Equilibrium of higher mean wages and lower costs, but also lower monopoly rents. But if there are other barriers to entry (as Ampersand mentions in each of his postings on this series) then no such Nash Equilibrium exists and discrimination can last “forever.”
Incidentally, economists usually interpret this to mean the discriminatory equilibrium is unstable–it’s a game of Prisoner’s Dilemma, in which there’s a big payoff for “defecting” (i.e., admitting women or non-whites into higher-paid jobs). This is what economists usually say. And amazingly enough, I’ve never thrown my bicycle helmet at them when they said it. Such is my commitment to nonviolence.
The economists naturally ignore the fact that the market, being segmented, has a lower equilibrium demand for labor and therefore the payoffs for defecting are nil.
[blinks] I didn’t understand any of that. Not Amp’s post, but James’s responses. I just… Wow. That was English?
I really need to learn even the very basics of economics. I mean, no matter what they told me in high school, “supply and demand” just doesn’t cover everything you need to know about economics.
Sorry. Actually, when I first wrote all that in the comments section, I looked at it and wondered if it was really appropriate. For one thing, I’m just getting a handle on this stuff myself. But if you want, you could stop by my site (here) and see if my second attempt was any more clear.
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