Who is responsible for closing the gender pay gap?

November 20, 2013

Women respond differently to incentives in the workplace. Does that mean that it’s fair that women make less?

A few weeks ago, economists John List and Uri Gneezy wrote in Freakonomics about a new study they’ve done on the gender pay gap. Currently women make about 80% of what men do, and the paper takes a stab at explaining why.

In their experiment, researchers advertised on Craigslist and interviewed about 7,000 candidates in 16 cities. To one group of people, they offered a flat hourly rate of $15 per hour, and to the other group they offered $12, with the opportunity to compete with another employee for a $6 per hour bonus (making the average $15/hour). Here is what they found:

Women were 70% less likely than men to go after the job if it had the competitive pay scale. This result accords with the broader insights from laboratory experiments that others—Muriel Niederle, Lise Vesterlund, Aldo Rustichini, etc.—have found.  Of course, this estimate doesn’t apply to every type of job and every type of person in the country, but it does underscore the fact that, when it comes to competition at a potential job, women aren’t always interested in leaning in.

This is a fair point, if a misuse of the term “lean in”. What the study shows is that women are more risk-averse in the workplace when it comes to pay. Specifically, the study finds, women prefer knowing they will get $15 per hour rather than taking the risk of earning a lower amount.

There are plenty of caveats, though. For one, men also hate competitive pay. From the study: “We observe that both men and women prefer not to be in competitive environments, but that women simply have stronger preferences against them.” The authors also say that while women are dissuaded by variable compensation that’s 50% of their base pay, they are much less so when they are only competing for 22% of their overall pay. The experiment also didn’t factor in the family situation of the applicants — could it be that the difference between those who will compete for variable income versus a higher base pay are those who don’t have dependents (more likely to be men)?

Further, less competitive pay preferences don’t necessarily mean women aren’t competitive in other parts of the workplace. It means they prefer the security of a higher base salary compared to incentive-based pay. Just because she wants to make sure she takes home $15 today doesn’t mean she isn’t working toward the promotion that pays her $20 tomorrow.

But let’s get back to the real question: Does being risk-averse when it comes to variable compensation mean women deserve to make less? More likely it means means companies should rethink their compensation structures.

Jon Dymond’s recent column in the Guardian suggested the same. He critiqued the type of thinking that “unconsciously blames women for failing to get ahead”:

The real barrier to greater gender diversity – and to coping with the common organisational challenges faced today – isn’t that women need to learn how to play the game the male way. It’s more fundamental. It’s about companies not adapting the way they operate, value and manage their people either to women or to the modern world.

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