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Hearing of March 16, 2016 - Public Input into the Proposed Revisions to the EEO-1 Report

Written Testimony of Betsey Stevenson
Associate Professor of Economics and Public Policy
Ford School of Public Policy, University of Michigan

Chair Yang and distinguished Commissioners, thank you for the opportunity to speak to you today about the value of bringing more data to light in order to better meet the charge of the EEOC and OFCCP of ensuring that workers are treated fairly and equally.

I am speaking to you today as an economist who has studied how public policy can impact behavior in the labor market and the challenges that women have faced in achieving equality in the workplace.

While we are all aware that overt discrimination has been illegal for many decades, the evidence points to ongoing discrimination in pay and hiring. A well-known field experiment in which researchers sent out resumes with very African-American-sounding names or very white-sounding names identified significant racial discrimination.1 Importantly, federal contractors discriminated as much as other employers.  A similarly ground-breaking study showed that hiding the gender of auditioning musicians increased the share of women hired-making it clear that previous tendencies to hire more men for the orchestra were driven by bias.2 In the ensuing decade since that research was conducted, further studies have identified differences in employer behavior that appear to reflect discrimination, even though much of that discrimination may be implicit.3

Implicit discrimination has proven to be more difficult to eradicate than explicit discrimination has. Research has documented that even those who desire not to discriminate may subconsciously prefer a candidate based on gender, race, or ethnicity.4

Since my area of expertise is in gender wage gaps, let me start by providing some background on the state of the gender wage gap.

In 2014, the median woman working full-time, all year, earned only 79 percent of what her male counterpart earned-a gap of more than $10,000.5 In addition, although the pay gap closed 17 percentage points between 1981 and 2001, it's only been in the last two years that we've seen any further decline.

Importantly, the 79 percent figure does not tell us how much discrimination is occurring. Even today, women have different educational attainment, work in different occupations and industries, and have different workplace experience. These differences have explained part of the wage gap in the past. During the 1980s and 1990s, women's education and experience gains were the primary drivers narrowing the gender wage gap.6 Today, women receive more post-secondary degrees than men, so accounting for education actually widens the pay gap.7

Over the past 40 years, women have also been increasingly entering occupations that were historically male-dominated. However, even with this progress, differences in occupation and industry persist.

Economists Francine Blau and Lawrence Kahn have done a comprehensive decomposition of the gender pay gap, accounting for characteristics like education and experience, then accounting for additional characteristics like education, industry, and occupation. By these calculations, in 2010, a full 38 percent of the pay gap is unexplained by education, experience, region, industry, occupation, unionization, and race/ethnicity.8

But such a decomposition may actually be overlooking important sources of discrimination. Many people point to differences in education, experience, occupation, and industry and call them differences in women's choices. But these differences are often due to differences in opportunities, not choices. While explicit barriers have been removed due to legislation forbidding discrimination, barriers continue to exist nonetheless. For example, women report leaving computer science at high rates, citing a hostile work environment.9 These exits mean that there are fewer women to serve in advanced leadership positions and they may be serving to discourage young women from entering the field. Today women are a much smaller share of computer science majors compared to a few decades ago.

Occupations also differ in terms of their culture regarding working families. The eminent economists Claudia Goldin and Lawrence Katz have documented how wage penalties for brief career interruptions vary substantially by occupation.10 The occupations with the highest "price" for taking maternity leaves or other interruptions are less attractive to women. The unanswered question is why these occupations impose such stiff penalties for small interruptions.

In short, there is no consensus among economists whether we should account for differences in industry and occupation when studying the gender wage gap. If these differences stem from preferences for different types of work, it is reasonable to account for them, but if men and women face different job opportunities because of discrimination, we should not account for industry and occupation in estimating the gender pay gap. In many situations, the delineations between discrimination and preferences are not clear. In fact, discrimination may begin early in life and slowly accumulate throughout workers' careers.

In fact, the gender pay gap grows over workers careers. Part of the expanding gap is due to women taking time out of paid work to care for children, but there are also gender differences in raises and promotions. Small gender differences in raises or the likelihood of being promoted early on can easily get magnified over the course of a worker's life as each subsequent wage offer may be partially based on the previous wage.

Research has pointed to gender differences in negotiation as potentially being a cause of differences in wages by gender. For example, women of all education levels are less likely to negotiate their first job offer than men.11 Yet, this isn't a matter of simply telling women to negotiate. When women do negotiate, if the norms of negotiation and salary expectations are not transparent, they are likely to receive lower compensation than men.12

Information about the wages of others is potentially an important factor in women's success in negotiating raises and promotions and in making employers aware of implicit bias. Enhancing pay transparency, as the proposed policy would do, can play an important role in helping women negotiate and reduce the pay gap.13

Gender can affect whether the candidate is hired, the starting salary offered, and the employer's overall assessment of the candidate's quality even if it is unintentional. Over the past six years, we've seen that pay discrimination is still present in many situations. Since the creation of the Equal Pay Task Force in 2010, the EEOC has received tens of thousands of charges of pay discrimination, and has obtained over $85 million in monetary relief for victims of sex-based wage discrimination.

Since 2009, the Lilly Ledbetter Fair Pay Act, has made it easier for working Americans to challenge illegal unequal pay. This law amends the Civil Rights Act of 1964 so that pay complaints can be filed within 180 days of a discriminatory paycheck. However, in order to file a claim, workers must know whether they are receiving unequal pay. However, due to formal and informal policies limiting pay transparency, many workers, may be unaware whether they face wage discrimination. For example, a 2010 survey found that 19 percent of employees reported that their employer formally prohibited discussing salaries and another 31 percent are discouraged from discussing compensation.14

In April 2014, a Presidential Memorandum required Federal contractors submit summary wage data, including wage data by sex and race. This step was taken not only to help enforce equal pay law, but also to provide better insight into pay practices across industries and occupations. The current steps discussed by the EEOC will broaden these actions, to advance equal pay for all workers, not just Federal contractors. This proposal revises a form already in existence and already familiar to employers, and would not require reporting individual salaries. This proposal makes sense for three reasons.

First, it will facilitate voluntary compliance with existing pay laws, by helping employers evaluate how they are compensating their employees. This can reduce the need for more costly legal action by helping employers become aware of implicit bias that may be creating unintentional wage gaps.

Second, it will better target EEOC investigations to employers with unfair pay practices based on gender, race, or ethnicity. Being able to better target investigations not only ensures that the EEOC is more efficiently run, but it creates a stronger set of incentives for employers to voluntarily correct any unfair pay practices.

Third, by using a form that employers are already familiar with, this policy has the potential to reduce compliance costs for businesses and implementation costs for the government.

The motivation for increased pay transparency goes beyond individual workers. When workers are treated fairly in the workplace and are able to select jobs that best match their skills, this also benefits the overall labor market and economy. The current proposal to collect summary wage data from large employers can help ensure fair pay for all workers and improve employer awareness and knowledge about pay practices, all while reducing compliance costs for businesses and the government.


Footnotes

1 Bertrand, Marianne and Sendhil Mullainathan. "Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination." American Economic Review, 94(4): 991-1013.

2 Goldin, Claudia and Cecilia Rouse. "Orchestrating Impartiality: The Impact Of 'Blind' Auditions On Female Musicians," American Economic Review, 2000, v90(4,Sep), 715-741

3 Fryer, Roland G., Devah Pager, and Jörg L. Spenkuch. "Racial Disparities in Job Finding and Offered Wages." Journal of Law and Economics, 56(3): 633-689. 2013. Giuliano, Laura, David Levine and Jonathan Leonard. "Manager Race and the Race of New Hires." Journal of Labor Economics, 27(4): 589-631. 2009.

4 Corinne A. Moss-Racusin, John F. Dovidio, Victoria L. Brescoll, Mark J. Graham, and Jo Handelsman Science faculty's subtle gender biases favor male studentsPNAS 2012 109 (41) 16474-16479

5 Median earnings among full-time female workers were $39,600, compared to $50,400 for men. Current Population Survey, Annual Social and Economic Supplement. The wage gap is even larger when comparing earnings of women of color to earnings of non-Hispanic white men.

6 Blau, Francine and Lawrence Kahn. 2006. "The U.S. Gender Pay Gap in the 1990s: Slowing Convergence." Industrial and Labor Relations Review, 60(1): 45-65

7 While men continue to have more labor market experience, Blau and Kahn (2016) estimate experience differences explain 0.037 log points, or 16 percent of the gender wage gap in the base specification. Half of the differential from experience is offset by higher educational attainment among women.

8 Blau, Francine and Lawrence Kahn. 2016. "The Gender Wage Gap: Extent, Trends, and Explanations." IZA Discussion Paper 9656.

9 Hewlett, Sylvia Ann, Carolyn Buck Luce, Lisa J. Servon, Laura Sherbin, Peggy Shiller, Eytan Sosnovich, and Karen Sumberg. "The Athena Factor: Reversing the Brain Drain in Science, Engineering, and Technology." Harvard Business Review. June 2008. No. 10094.

10 Goldin, Claudia and Lawrence F. Katz. "The Cost of Workplace Flexibility for High-Powered Professionals." The ANNALS of the American Academy of Political and Social Science. 638(45). 2011. Goldin, Claudia and Lawrence F. Katz. "The Career Cost of Family." Sloan Conference Focus on Flexibility. 2010. http://workplaceflexibility.org/images/uploads/program_papers/goldin_-_the_career_cost_of_family.pdf

11 Babcock, Linda and Sara Laschever. Women Don't Ask: Negotiation and the Gender Divide. Princeton University Press, 2003.

12 While disparities in negotiated salaries are small in situations where ambiguity over salary ranges and negotiation norms were low, in more ambiguous situations, women received about $10,000 less than similarly qualified men. See Pradel, Dina W. Hannah Riley Bowles, and Katheleen McGinn. 2016. "When Gender Changes the Negotiation," Harvard Business School.

13 Chamberlain, Andrew. 2015. "Is Salary Transparency More than a Trend?" Glassdoor.

14 Institute for Women's Policy Research. 2010. "Pay Secrecy and Paycheck Fairness: New Data Shows Pay Transparency Needed"