0 Coastline Home - CCCd edu X '2 Module 8 Labor Markets {Whu X '93 Chapter 13 The Effects of the l\\- x f) ell 6 C plus. pearsonrom Chapter 13 The Effects ofthe Mlnlmurn Wage m GT GD Table Of Contents X 6 Contents Bookmarks Recent so Pan ThreeLabor Markets (0) , .pwww Chapter 13 The Effects of the Minimum Wage 3 Chapter12 (Why) Are Women Paid Less? v mwunmmuyhmnimum Wage Ask workers if they would like a raise, and the answer will surely be a resounding yes. But ask them if they would like to be red or have their hours of work reduced, and they would undoubtedly tell you no. The effects of the minimum wage are centered on Backgmund exactly these paints. Proponents of the minimum wage (Bethe lowest hourly wage rms may legally pay their workersargue that low-inoome workers are underpaid and therefore unable to support themselves or their families. The minimum wage, they say, raises earnings at the bottom of the wage distribution, with little disruption to workers or businesses. Opponents claim that most low- Recent Evidente wage workers don't have families to support. The minimum wage, they say. merely enriches a few at the far greater expense of many others, who can't get jobs. Most important, opponents argue. many individuals at the bottom of the economic ladder lack the skills needed for employers to hire them at the federal minimum. Willing to work but unable to nd jobs, these people never learn the basic job skills needed to move up the economic ladder to higher-paying jobs. The issues are clearibut what are the facts? Does LOWVWage Mean Lewilnmrne? PQED The Big Losers Fig m for $15 Nothing Is Easy Discussion Questions 3 Chapter 14 The (Dis)incentives of Higher Taxes Part Four Market Structures Coastline Home - cccd.edu X Module 8: Labor Markets: (Why) / X Background X 9 New Tab X C plus.pearson.com/products/97706734-94bf-416d-80ed-9f421f025feb/pages/ab884b5aeef2e7ad4d631566f2a219712acdb5164-P7001014303000000000000000000561?&l.. Q G Chapter 13 The Effects of the Minimum Wage W QT Table Of Contents X Contents Bookmarks Recent Part Three Labor Markets Background (0 > Chapter 11 Das Kapital in the Twenty-First Century The federal minimum wage was instituted in 1938 as a provision of the Fair Labor Standards Act. It was originally set at 25 Q cents per hour, about 40 percent of the average manufacturing wage at the time. Over the next forty years, the legal minimum > Chapter 12 (Why) Are Women Paid Less? was raised periodically, roughly in accord with the movement of market wages throughout the economy. Typically, its level has 91 averaged between 40 and 50 percent of average manufacturing wages. In response to the high inflation of the late 1970s, the Chapter 13 The Effects of the Minimum Wage minimum wage was hiked seven times between 1974 and 1981, reaching $3.35 per hour-about 42 percent of manufacturing wages. President Ronald Reagan vowed to keep a lid on the minimum wage, and by the time he left office, the minimum's Background unchanged level left it at 31 percent of average wages. Legislation passed in 1989 raised the minimum to $3.80 in 1990 and $4.25 in 1991. Five years later, Congress raised it in two steps to $5.15 per hour. Over the period 2007-2009, the minimum BJ Does Low-Wage Mean Low-Income? was hiked in three steps to its current level of $7.25 per hour. About 1.3 million workers earn the minimum wage. Another 1.7 million are paid even less because the law doesn't cover them. AA Recent Evidence Supporters of the minimum wage claim that it prevents exploitation of employees and helps people earn enough to support their families and themselves. Even so, at $7.25 per hour, a full-time worker earns only about 60 percent of what the The Big Losers government considers enough to keep a family of four out of poverty. In fact, to get a family of four with one wage earner up to the poverty line, the minimum wage would have to be more than $12.00 per hour. Fight for $15 Yet opponents of the minimum wage argue that such calculations are irrelevant. For example, 98 percent of married people earn above the minimum wage, and single people paid the minimum earn enough to put them 20 percent above the poverty Nothing Is Easy cutoff. Overall, almost one-quarter of minimum wage workers are teenagers, most of whom have no financial obligations, except perhaps clothing and automobile-related expenditures. Thus, opponents argue that the minimum wage chiefly benefits Discussion Questions upper-middle-class teens who are least in need of assistance at the same time that it costs the jobs of thousands of disadvantaged minority youths. Chapter 14 The (Dis)incentives of Higher Taxes Part Four Market Structures Hide Chapter 11 Das Kapital in the Twenty-First Century Much of the discussion of the minimum wage glosses over the very real distinction between "low wage" and "low income." If we Q go back to 1939, just after the federal minimum wage was established, we find that 85 percent of low-wage workers were in > Chapter 12 (Why) Are Women Paid Less? poor families. Hence, the original minimum wage did a good job of targeting the poor. Fast-forward to the present, and only 18 92 percent of low-wage workers are now in poor families. Chapter 13 The Effects of the Minimum Wage There are several reasons why there is only a weak link between low wage and low income today. First, due to the rising Background incidence of multiple-earner families, many low-wage workers are in higher-income families. Second, some workers in poor families earn more than the minimum hourly wage but, voluntarily or otherwise, don't work enough hours to get out of poverty. Does Low-Wage Mean Low-Income? Finally, about half of poor families have no workers at all. The net effect of these factors is that only 18 percent of the benefits of a higher minimum wage would go to the poor-and 32 percent would go to families earning more than triple the poverty line. AA Recent Evidence The Big Losers Fight for $15 Nothing Is Easy Discussion Questions Chapter 14 The (Dis)incentives of Higher Taxes Hide Part Four Market Structures Chapter 11 Das Kapital in the Twenty-First Century Much of the discussion of the minimum wage glosses over the very real distinction between "low wage" and "low income." If we Q go back to 1939, just after the federal minimum wage was established, we find that 85 percent of low-wage workers were in > Chapter 12 (Why) Are Women Paid Less? poor families. Hence, the original minimum wage did a good job of targeting the poor. Fast-forward to the present, and only 18 92 percent of low-wage workers are now in poor families. Chapter 13 The Effects of the Minimum Wage There are several reasons why there is only a weak link between low wage and low income today. First, due to the rising Background incidence of multiple-earner families, many low-wage workers are in higher-income families. Second, some workers in poor families earn more than the minimum hourly wage but, voluntarily or otherwise, don't work enough hours to get out of poverty. Does Low-Wage Mean Low-Income? Finally, about half of poor families have no workers at all. The net effect of these factors is that only 18 percent of the benefits of a higher minimum wage would go to the poor-and 32 percent would go to families earning more than triple the poverty line. AA Recent Evidence The Big Losers Fight for $15 Nothing Is Easy Discussion Questions Chapter 14 The (Dis)incentives of Higher Taxes Hide Part Four Market Structures Chapter 11 Das Kapital in the Twenty-First Century When politicians decide to raise the minimum wage, it is only after heated battles often lasting months. Given the stakes Q involved-an improved standard of living for some and a loss of job opportunities for others-it is not surprising that > Chapter 12 (Why) Are Women Paid Less? discussions of the minimum wage soon turn to controversy. As one former high-level U.S. Department of Labor official said, "When it comes to the minimum wage, there are no easy positions to take. Either you are in favor of more jobs, less Chapter 13 The Effects of the Minimum Wage discrimination, and more on-the-job training, or you support better wages for workers. Whatever stance you choose, you are bound to get clobbered by the opposition." When Congress and the president face this issue, one or both usually feel the same Background way. Does Low-Wage Mean Low-Income? AA Recent Evidence The Big Losers Fight for $15 Nothing Is Easy Discussion Questions Chapter 14 The (Dis)incentives of Higher Taxes Hide Part Four Market Structures Chapter 'l'l Das Kapital in the Twenty-First Century I V Chapter'lz WATEWOM Paid Less? Is It Discrimination? The Importance of Children Occupational Selection Hours of Work P9590 Dental Discrimination? Discussion Questions > Chapter l3 The Effects ofthe Minimum Wage > Chapter l4 The (Dis)in(entives of Higher Taxes Hide Part Four Market Structures 84 Chapter 12 (Why) Are Women Paid Less? Chapter 12 (Why) Are Women Paid Less? Since the middle of the twentieth century, there has been a revolution in the job market. Women have entered the paid workforce in unprecedented numbers. In 1950, only about one-third of workingage women were in the paid workforce. Today, about 57 percent are. Over the same period, the male labor force participation rate Q has fallen from 86 percent to 69 percent, so women now account for almost half of the paid workforce in America. There also has been an overwhelming change in the nature of paid work done by women. Fifty years ago, professional careers for women outside of nursing or teaching were unusual. Today, women comprise roughly half of the newly minted attorneys and physicians starting work each year. Over the same period, there has been a transformation of wages, too. In 1950, median earnings of women were only two-thirds those of men. Today, women earn 80 percent of what men are paid. Reread that last sentence. On average, for every dollar a man earns, a woman gets paid 80 cents. Can this possibly be true? Considerthis fact: Nearly 70 percent of employers' costs are accounted for by labor. An employer who hired only women at 80 cents on the dollar could cut labor costs by 20 percent relative to an employer who hired only men. This would yield added profits of about 14 percent of salesiwhich would more than triple the profit) earned by the typical firm. If women are paid 20 percent less than men, how could any employer possibly afford to hire anyone but women? Coastline Home - Cccd edu X '3' Module 3 Labor Markets lIWh: C plus. pearsonrom x 'p islt Discrimination? Table Of Contents X Pan Three La bor Markets 6 Contents Bookmarks Recent (0 3 Chapter ll Das Kapital in the TwentyrFirst Century V mmnmmepaszs? ls l: mainlinaliun? The Importance of Children Occu pational Sei ection Hours of Work PQEgDQ Dental DISLl'll'lnathl'l? Discussion Questions 3 Chapter 13 The Effects ofthe Minimum Wage 3 Chapter 14 The (DisJincentives of Higher Taxes Pan Four Market Structures 3 Chapter 15 The Platform Economy > Chaoterl Contrans Combinations. and Conspiracies ,0 Type here to search 55 Chapter 12 (Why) Are Women Paid Less? Is It Discrimination? At this point you may be saying to yourself, \"Surely, there are differences between men and women other than their sex that can help account for this 'gender gap' in earnings." You would be correct. Earnings are a reflection of experience, education, marital status, and age, for example. But even when economists control for all of these individual characteristicsusing nationwide data, such as from the U.S. Census Bureau or the Bureau of Labor Statisticsiunexplained differences between the pay of men and women pefSlSl. Men with the same measured individual characteristics are paid at least 10 percent more than women, and some studies find a difference twice that size. The widespread opinion of many observers is that the unexplained gap between the pay of men and women is chiey the result of discrimination against women. The reasoning is simple. Most business owners and senior managers are men, and, given a choice between hiring a man or a woman, the \"old-boy network\" operates in favor ofthe man. According to this view, women can get the job only if they agree to accept lower wages. ConSider this fact, however: For over fifty years, it has been illegal to discriminate in the workforce on the basis of race or gender. Two major federal agencies, the Equal Employment Opportunity Commission and the Ofce of Federal Contract Compliance, are wholly or iargeiy devoted to ensuring that this antidiscrimination mandate is enforced. As interpreted by the courts, the law now says that if the statistical appearance of lower wages for women (or minorities] is present in a workplace, the employer is presumed guilty of discrimination and must prove otherwise. No one thinks that federal agencies do a perfect Job at enforcing the law here or elsewhere, but it is hard to believe that a persistent 20 percent pay difference could escape the notice of even the most nearsighted federai bureaucrat. A hint of what might be going on begins to emerge when economists study the payroll records of individual firms, using actual employee information that is speCific and detailed regarding the location of the rm, type ofwork, employee responsibilities, and other factors. These analyses reveal that the so-called wage gap between men and women is much smalleritypicaiiy no more than 5 percentand often there is no gap at all. The sharp contrast between firm-level data and economy-wide data suggests that something may be at work here besides (or in addition to) outright gender discrimination. Coastline Home - cccd.edu X Module 8: Labor Markets: (Why) / x The Importance of Children X 9 New Tab X C plus.pearson.com/products/97706734-94bf-416d-80ed-9f421f025feb/pages/a0b3ac27edfd6c2d3e3190cc753187a7431740699-P7001014303000000000000000000530?&l.. Q G Chapter 12 (Why) Are Women Paid Less? W QT Table Of Contents X Contents Bookmarks Recent Part Three Labor Markets The Importance of Children (0 > Chapter 11 Das Kapital in the Twenty-First Century That something is actually three things. First, women's pay is extremely sensitive to whether or not they have children. In Q Britain, for example, where this issue has been studied intensively, the average pay earned by a woman begins to fall shortly Chapter 12 (Why) Are Women Paid Less? before the birth of her first child and continues to drop until the child becomes a teenager. Although earnings begin to revive once the first child passes the age of twenty or so, they never fully recover. The earnings drop associated with motherhood is Is It Discrimination? close to one-third, and only one-third of that drop is regained after the nest is empty. American data suggest that the same pattern is present on this side of the Atlantic. The Importance of Children The parenthood-pay declines suffered by women stem from a variety of sources. Some are put on the "mommy track," with reduced responsibilities and hours of work. Others move to different employers around the time their first child is born, taking Occupational Selection jobs that allow more flexible work schedules but offer correspondingly lower pay as well. Overall, a woman with average skills who has a child at age twenty-four can expect to receive nearly $1 million less compensation over her career compared to one AA Hours of Work who remains childless. It is worth emphasizing that no similar effect is observed with men. In fact, there is some evidence that men with children are actually paid more than men without children. These findings strongly suggest a fact that will come as no Dental Discrimination? surprise to most people. Despite the widespread entry of women into the labor force, they retain the primary responsibility for child care at home, and their careers suffer as a result. Discussion Questions Chapter 13 The Effects of the Minimum Wage Chapter 14 The (Dis)incentives of Higher Taxes Part Four Market Structures > Chapter 15 The Platform Economy Hide Chapter 11 Das Kapital in the Twenty-First Century The second factor at work in explaining male-female wage differences is occupational selection. Compared to women, men Q tend to concentrate in paid employment that is dangerous or unpleasant. Commercial fishing, construction, law enforcement, Chapter 12 (Why) Are Women Paid Less? firefighting, truck driving, and mining, to name but a few, are occupations that are much more dangerous than average and are dominated by men. As a result, men represent 92 percent of all occupational fatalities. Hazardous jobs offer what is known as a Is It Discrimination? 87 compensating differential , extra pay for assuming the differential risk of death or injury on the job. In equilibrium, these extra wages do no more than offset the extra hazards. So even though measured earnings look high relative to the educational The Importance of Children and other requirements of the jobs, appearances are deceiving. After adjusting for risk, the value of that pay is really no greater than that for less hazardous employment-but the appearance of higher pay contributes to the measured gender gap. Occupational Selection Women's measured pay is also held down by two other elements of their occupational choices. First, they tend to work in industries that are much less subject to job losses and unemployment than are men. In the latest recession, for example, 6 AA Hours of Work million men lost their jobs, but only 2.7 million women did so, and the unemployment rate among women is consistently below that of men, in good times and bad. Thus, an implicit component of compensation for women is job security. Second, women Dental Discrimination? tend to select college majors-such as sociology, psychology, and education-that feed into lower paying occupations. Men, by contrast, are more likely to pick engineering or computer science, where earnings are much higher. Discussion Questions Chapter 13 The Effects of the Minimum Wage Chapter 14 The (Dis)incentives of Higher Taxes Part Four Market Structures > Chapter 15 The Platform Economy Hide Chapter 11 Das Kapital in the Twenty-First Century The third key factor influencing pay is hours of work. Men are more than twice as likely as women to work in excess of fifty Q hours per week in paid employment. Overall, the average paid workweek for men is about 15 percent longer than it is for Chapter 12 (Why) Are Women Paid Less? women. Men are also more likely than women to be in full-time, rather than part-time, paid employment, and the wage differences here can be huge. Working an average of forty-four hours per week versus thirty-four hours per week, for example, Is It Discrimination? yields more than twice the pay, regardless of gender. This substantial gender gap in hours of paid work is due in part to the "mommy track" phenomenon, but the question that remains is: Does this constitute discrimination on the part of employers, or The Importance of Children is it the result of choices by women? Although we cannot answer that question definitively, there is reason to believe that some differences in occupational choice Occupational Selection (and thus in pay) are due to discrimination. For example, the highest-paying blue-collar jobs are typically union jobs, and industrial and crafts unions have had a long history of opposition to women as members. Or consider medicine. Women are AA Hours of Work becoming much more numerous in specialties, such as dermatology and radiology, where schedules tend to be more flexible, hours of work can be limited, and part-time practice is feasible. But many physicians would argue that the underrepresentation Dental Discrimination? of women in the high-paying surgical specialties is partly the result of discrimination against women, rather than reflecting the occupational choices preferred by women. If this argument is correct, then even if women in a given specialty are paid the same as men in that specialty, the exclusion of women from high-paying slots will lower their average wages and make them Discussion Questions worse off. Chapter 13 The Effects of the Minimum Wage Chapter 14 The (Dis)incentives of Higher Taxes Part Four Market Structures > Chapter 15 The Platform Economy Hide Chapter 11 Das Kapital in the Twenty-First Century If you are inclined to dismiss the explanations offered for the differences in pay between men and women, it may be useful to Q consider dentists. Women dentists earn only 74 cents for each dollar earned by male dentists-a number even worse than Chapter 12 (Why) Are Women Paid Less? observed for the population as a whole. Yet dentists are overwhelmingly self-employed, either as solo practitioners or as members of partnerships they have created. Are women dentists discriminating against themselves? Are female patients, when Is It Discrimination? they utilize male dentists, foolishly turning their backs on a 26 percent discount offered by women dentists? Neither of these explanations seems plausible. Yet if we reject the notion of pay differentials based on hours of work and experience, we are left The Importance of Children with these. The extent of gender discrimination in the workplace is unlikely to be definitively settled any time soon. Measured earnings Occupational Selection differences, even those that account for experience, education, and other factors, clearly overstate the true pay gap between equally qualified men and women. Just as surely, however, given the heavier parenting demands typically made on women, AA Hours of Work even when they receive equal pay, it is not for equal work. Dental Discrimination? Discussion Questions Chapter 13 The Effects of the Minimum Wage Chapter 14 The (Dis)incentives of Higher Taxes Part Four Market Structures > Chapter 15 The Platform Economy Hide