Equal Pay and Equal Productivity: One Economist's Search for Answers

Most high school kids don’t know what they want to do for the upcoming weekend, let alone for the rest of their lives. But Yana Gallen knew early on that she wanted to study and, eventually, work in the field of economics.

And, unlike most young people whose early pursuits are often transient and take numerous detours, Gallen stayed true to her path, realizing her dream in 2016 when she joined the University of Chicago Harris School of Public Policy as an assistant professor and labor economist.

Joining the staff of Harris Public Policy actually marked a return to the University of Chicago for Gallen, who received her bachelor's degree here before going on to Northwestern University to pursue her Ph.D. in economics.

"I have a lot of alumni love for the University of Chicago. For me, as a high school student, it was a dream to come to here as a student, and it's really amazing to be back," said Gallen, who grew up roughly 90 miles northwest of Hyde Park in Rockford, Illinois.

"I always knew that I wanted to work in the field of economics. I think it's the right way of organizing your ideas about the world and understanding how cause and effect works. I've always been super interested in it, and I was glad to be able to come back to the place where I first learned economics to teach," she added.

In addition to passing along her knowledge and passion to budding economists, Gallen conducts research in an area that captured her interest early and happens to be one of the hottest topics in American society today: gender equity in the labor market, specifically as it relates to income, productivity, and career decisions.

Issues around women’s empowerment and gender equality have been thrust back into the spotlight in recent years due to headline-grabbing cases of sexual assaults, misconduct, discrimination, and inequality — all of which ignited the subsequent #MeToo and Time’s Up movements.

Of course, efforts to address women’s rights and workplace equality have been around for more than a century. The battle for equality began long before women secured the right to vote in 1920. And the battle for equal pay began long before the National Committee on Pay Equity (NCPE) was established in 1979 to close the wage gap that still exists between men and women.

As noted on the NCPE website, women made 59 cents on average for every dollar earned by men when the Equal Pay Act was signed in 1963. As of 2017, women earn 78 cents for every dollar men earn. This year, the NCPE marked April 10 as Equal Pay Day — the symbolic point in the current year that women’s earnings catch up to what men earned in the previous year.

While the NCPE uses the day to shed light on and eventually solve the problem of wage inequality between men and women, the reasons for the continued imbalance are numerous and complex, as Gallen has discovered in just the handful of studies she has conducted to date:

“I wouldn't say that we know for sure whether pay is equal or unequal, what that means, or how much any inequality reflects preferences versus discrimination. And, if it reflects preferences, whether those preferences are arising out of social conditions that we could change somehow. We first have to resolve these extremely basic questions before we can hope for a solution to pay inequality."

Gallen’s recent research on the gender pay gap asks what fraction of the pay gap can be explained by productivity differences between men and women. She finds that about two-thirds of the pay gap can be explained by differences in productivity, but that the gap between pay and productivity is largest for women without children. Mothers are less productive than men (perhaps because they have unequal pressure to take care of children relative to fathers and spend less time in the office), but they are also paid less.

In contrast, Gallen finds that women without children are as productive as men but they are paid less, particularly in their prime child-bearing years.

“A worker’s salary is just a single number but it packs in a lot of very complex interactions: how much time you spend at work, the job you have — which may reflect either employer discrimination in promotion or your own preferences — and how much negotiating power you have in setting that salary,” Gallen said.

“One thing that's obvious is that the life paths of women look really different than the life paths of men," she continued. "This you can't argue with. Then the question is preferences versus discrimination and the interaction of those and policy. I think that we know so little about that, that it would be hard for anybody to make any scientific claims one way or the other."

Making these trends and issues even more challenging to nail down is that they are continually changing, differing from region to region, and from generation to generation. For example, it appears that both male and female millennials are willing to accept less pay to work in a setting that better suits their lifestyle.

A recent CNBC.com news story reported on a survey from software firm Qualtrics and venture capital firm Accel Partners, which found that 77 percent of millennials would take a salary cut of at least 3% in exchange for long-term job security. About the same percentage said they would accept less pay for flexible office hours. And, roughly 67 percent were willing to take less pay to work at a company that offers good mentorship opportunities.

How these preferences translate to pay gaps is less clear. In a recently published study, Alexander Mas and Amanda Pallais asked workers applying for a job about their ideal work schedule and found that women with young children had a higher willingness to pay for work-from-home arrangements and to avoid employer discretion in scheduling, but the differences were not large enough to explain any wage gaps.

It’s nearly impossible to say if and how trends in preferences will intersect with and/or impact earnings imbalances between men and women. Add other complex trends, such as the fact that women are staying single longer, starting families later, or not starting families at all, and the factors influencing earnings trends become even more muddled.

Gallen warns that without having an in-depth understanding of all the moving parts, it is not only difficult to make policy changes to address these economic problems, it actually could be counterproductive:

"I think it's maybe dangerous to make policy, in the sense that if the problem you're trying to solve is discrimination by employers, you enact policies that make women look even more different than men. That's potentially going to lead to more discrimination."

Gallen pointed to Ban the Box legislation, which removed questions on job applications about criminal history, since checking the box for having such a past typically eliminated the applicant from consideration. The intention behind the movement and the resulting legislation was good and well-reasoned.

"You don't want to continue to punish people after they've served their jail time. And there are all sorts of other reasons that you might not want employers to ask this question. So, many states banned that question. Unfortunately, what people found is that employers simply use some other proxy for criminal activity to discriminate on that margin, and, in many cases, that's race. Then you end up with black applicants not being looked at at all for a job, because people are assuming that they're more likely to have been criminals in the past and they can't ask directly," she said.

When making changes to parental leave policy, we have to be cautious and mindful about the potential effects of this policy on hiring and promotion of women for similar reasons, Gallen argues. She studies the effects of expansions in parental leave in Denmark and finds evidence that firms are strained when workers go on leave, which may cause some firms to avoid hiring or promoting women very likely to have children in the near future.

“The Nordic countries look great on almost every margin of female labor force participation, but women are much less likely to be in management positions there and do a lot of part-time work. Maybe that has something to do with the extremely generous leave policies,” she said.

The nuances and complexities of these issues are what keep Gallen energized.

"I think a lot of people on Harris's team work in areas where policy implications are pretty clear, or they're testing policies directly. I think the gender wage gap issue is an area where the policy implications aren't as clear-cut, but there's a lot of interest in creating policies to change something. I think that my job, as a researcher, is to figure out what the somethings are...what the facts are, first. I think there's a lot of room to do that in this field,” she said.