After filing through candidacies for a new Chief Economist position in 1947, the Standard Oil Company chose the up-and-coming Anita Summers, mother of famous (or infamous) economist Lawrence Summers, for the job. Praising her unparalleled intellect, her new employer welcomed her:

“I am so glad to have you! I figure I am getting the same brains for less money.”[1]

At the end of last month, President Obama issued an executive order mandating firms with over one hundred employees to report wages paid, as well as information of gender, race, and ethnicity, which aimed to drastically reduce cases similar to that of Anita Summers. The executive order came seven years after the passage of the Lilly Ledbetter Fair Pay Act of 2009, which extended the time period claimants of pay discrimination have to press charges. The White House, in its press release, referenced one of the most well-known third-wave feminist statistics: women earn “only 79 percent of a man’s median earnings.”[2]

The Equal Employment Opportunity Commission (EEOC) plans to aggregate data across ten broad categories; for example, “professionals” will include civil engineers, lawyers, and doctors. The EEOC hopes that through aggregating data, it could charge businesses with pay discrimination on the basis of gender and race. Although Obama’s order efficiently enforces the Equal Pay Act of 1963, it reflects poor economic analysis, thereby undermining the progress in resolving the pay gap issue.

The statistic states there are 79 female cents to a male dollar earned in 2014; $0.78 for white women, $0.63 for black women, $0.54 for Latina women, and $0.90 for Asian women, all compared to the average male wage. When compared to men of similar race, these ratios increase, except for Asian women, whose number drops to $0.79 when compared to Asian men, and white women, whose relative wage remains at $0.78. Differing median wages among race account for transracial discrepancies between these comparative statistics;[3] nevertheless, the aggregate economic incongruity of the sexes undeniably exists.

As much as this one statistic seems temptingly representative of institutionalized sexism within the American economy, these numbers require further inquiry into their nuances. Each earnings ratio is calculated by dividing female median wage by male median wage, without controlling for important variables such as education, geographic location, and, most importantly, occupation. In the Department of Labor’s 2014 Current Population Study, women are 3.5 times more likely to enter the educational or health service industries.[4] In fact, “while women are more likely than men to work in professional and related occupations, they are more highly represented in the lower-paying jobs within this category” – 7 percent of female computer and engineering professionals, compared to 38 percent of male experts, were employed in relatively high-paying occupations.[5]

In the aggregate, women also tend to specialize in traditionally female dominated vocations. Approximately 20 percent of all women were employed in one of five occupations in 2009: secretaries, nurses, elementary school teachers, cashiers, or nursing aides. Women also disproportionately prefer bachelor’s degrees in social sciences, humanities, and education.[6] In STEM, the percentages of female bachelor’s degrees in engineering, computer science, mathematics/statistics, physics, and economics are 19, 18, 43, 19, and 30 percent, respectively; these percentages generally decrease for master’s degrees and doctorates.[7]

So then, ceteris paribus, are men and women actually paid differently for identical work?

After controlling for eleven variables, including major, occupation, economic sector, months unemployed since graduation, and undergraduate institutional selectivity, the American Association of University Women cites a 7 percent “unexplained” difference between the earnings of men and women one year after graduation; the EEOC reports 38 percent of the gap to be unexplained. This figure fluctuates from study to study.[8]

The Washington Post reports that the EEOC had “recorded 26,027 sex-based charges and 21,073 race-based charges in 2014.” In fact, since 2010, the Commission has accumulated $85 million in employee-relief checks from firms.[9] The president’s new order will not only help these individuals reclaim their lost income, but will also help elucidate the true percentage of women discriminated in equal work, equal skill employment.

Before Obama’s executive order, firms had the opportunity of violating the Equal Pay Act without any immediate repercussion, especially if wage information is extremely well disclosed within the firm. Assuming they are rational actors, many employers would choose to exploit lower wage preferences of women if given the opportunity. By federally monitoring these discrepancies in pay, this incentive is removed, and any transgression would result in a public monetary loss; not only will current cases of inequality be pursued, but pay discrimination will also simply become uneconomical.

The president’s executive order, however, is far from perfect. Despite its nuances, the $0.79 statistic still shows that female average income is lower than that of the average man. Although new regulations will decrease instances of “unexplained” wage discrimination, to truly bridge the pay gap, hindering cultural norms must also be challenged. Proper analysis of the number shifts, to an extent, the burden of discrimination from individual firms to an aggregate societal level: persistent stereotypes about the intellectual capabilities of women, a lack of opportunities, and expectations of childrearing all help to explain the introduction of exogenous variables, which account for the majority of the pay gap. Simple economic theory reasons that decreased female income, mostly caused by unnecessary societal norms and limitations, adversely affects the economy, decreasing individual consumption, reducing total output, and deteriorating the livelihoods of others who depend on female income, such as children.

Obama’s recent executive order directly targets wage discrimination as defined by the Equal Pay Act of 1963, not the pay gap: its limited scope is simply not enough to raise the $0.79 statistic significantly in the near future. American women (and men) need long-term, federally-endorsed initiatives to provide girls and young women with diverse academic opportunities to dismantle gendered stereotypes surrounding occupation and to disassociate family-rearing and childbearing. Although fewer and fewer women of future generations may share Anita Summers’ experience, economic equality for all is still far off.

[1] Sheryl Sandberg, Lean In: Women, Work, and the Will to Lead, 1 edition (New York: Knopf, 2013).

[2]https://www.whitehouse.gov/the-press-office/2016/01/29/fact-sheet-new-steps-advance-equal-pay-seventh-anniversary-lilly

[3]http://www.aauw.org/resource/the-simple-truth-about-the-gender-pay-gap/

[4]http://www.dol.gov/wb/stats/latest_annual_data.htm

[5]https://www.whitehouse.gov/sites/default/files/rss_viewer/Women_in_America.pdf

[6] Ibid.

[7]http://www.nsf.gov/statistics/2015/nsf15311/digest/theme2.cfm#overview

[8]http://www.aauw.org/resource/the-simple-truth-about-the-gender-pay-gap/

[9]https://www.washingtonpost.com/news/wonk/wp/2016/01/29/obama-targets-gender-pay-gap-with-plan-to-collect-salary-data-from-big-businesses/

Deconstructing the Wage Gap