Does Comparative Advantage Create a Gender Pay Gap?

And can the inequity be explained by simple economics?

What is the pay gap?

This is not society operating with a strategy of sexism; this is individuals choosing to pay for what they consider commercially valuable.

As of 2016, the gender pay gap was about 20%; women earned 80.5 cents for every dollar a man earned. The gap has been noted for far longer than that, though, and people still puzzle over how to close it. Many on the left consider it to be evidence of institutional sexism (the patriarchy) still working its magic. While it is likely that many bosses from less enlightened generations contribute to sexism in the workplace, one has to wonder if this explanation is overly simplistic. Multivariate analyses of the gap, which by now have been presented by eminently more competent scholars than I, show a more intriguing story.

Christina Hoff Sommers offers some insights. She indicates, for one, that the ten most profitable college majors are dominated by men, while the ten least profitable majors are dominated by women. There are limits to what this can say about incomes trends between the genders generally, but it is indicative of the overall pattern.

David Geary talks about population differences and how they influence career choices (a point that Sommers also raises). He observes:

Sex differences in occupational interests have been known for decades, and a recent aggregate analysis of the interests of more than 500,000 people shows that some of these differences are quite large. The most relevant finding here is that about 15% of women have the same level of interest in engineering as the average man; 50% of men, by definition, would have stronger interests in engineering than the average man. Now, today’s math-intensive engineering does not have a direct evolutionary basis to it, but today’s occupational interests are likely influenced by more basic interests that have an evolutionary foundation.

If we look back at Sommers’s data, most of these majors dominated by men were indeed forms of engineering. Add that to the fact that demand for engineers by employers has generally exceeded their availability, and the story seems to write itself: men are more likely to offer something that the market wants and are reaping the rewards for it. This is not society operating with a strategy of sexism; this is individuals choosing to pay for what they consider commercially valuable. While it would be a mistake to dismiss sexism entirely, the meat and potatoes of the pay gap is natural within a market economy.

Why do men and women make different career choices? This is hard to say. Much of the research currently indicates that biology is a factor. The preferences for “things” in males and “people” in females is observed even in early childhood. If some of this behavior is hard-wired, it would explain why the sexes tend to lean a certain way.

What is comparative advantage?

Comparative advantage is a concept in economics, one of the oldest and most reliable in the field. It is applied in the context of international trade and attempts to explain how to maximize growth among trading nations by getting each party to focus on what they do best. I will provide a simple (and fictional) example to illustrate the idea further.

Imagine that Alaska and Arabia want to grow their economies. Both have a sand and an ice industry, and while it is easy to guess that Alaska has a stronger ice industry than Arabia, it also happens that it has a better sand industry too. Maybe it has enough coasts because of its size to keep up, and maybe the hot weather in Arabia makes most of the sand too dangerous to mine. In any event, both Alaska and Arabia decide to start trading, and while Alaska out-competes in both ice and sand, they decide that they are going to cut back on sand production and focus more on ice, while Arabia gets to take up the sand work.

The result is that both trading partners will, working together, produce more sand and ice than they did before, meaning that both are wealthier than they were before. While Arabia did not have a direct advantage to Alaska in sand, it did have a comparative advantage in sand over ice, meaning that it was still better to leave Arabia to focus on sand.

For an example that results from actual trade deals, one curious case is that of the avocado. Native to Mexico, NAFTA allowed the country to expand its production. As a result, the fruit is more plentiful in the world because Mexico was able to play to its strengths. America is bigger and could have its own avocado industry, but that would be a waste of capital and labor that could develop other sectors, so it is better just to let Mexico do it instead. This is comparative advantage at work. Note: There are issues with NAFTA that will be explained later.

Where does comparative advantage meet the pay gap?

Moreover, the existence of a gender pay gap as a consequence of comparative advantage between the sexes would mean that this is the most productive and efficient way to go for society at large.

If comparative advantage can apply to separate countries that trade with each other, then applying it to individuals even within a single economy is just a matter of scaling down. In fact, it may help to imagine male workers as the male economy and female workers as the female economy. If these two economies did not have trade deals, then every engineer in the female economy would be female. Similarly, every nurse in the male economy would be male. If both economies are equally sized, this would account for a hiring rate of 50–50 for both sexes in all industries.

Let us assume that in these two separate economies, the women are, on average, more competent than the men. By this, we mean to say that the women are more productive and efficient at their jobs, for all fields, even engineering. Therefore, if the economies have an equal starting point, then the female economy would have a higher GDP. Let us also assume that men and women still have their same general preferences (for men: things, for women: people), but since these are separate economies, that difference does not matter for now.

One day, the Unisexual Free Trade Agreement is signed (UFTA). Men and women are now allowed to work and trade together in a single economy. Ergo, their workplaces are going to mix and reach a certain balance between the genders. Once again, we are assuming that women are more competent but still prefer people over things. Let us try to quantify this:

Average Woman:

Value to economy as a nurse: 1.2

Value to economy as an engineer: 1.1

Average Man:

Value to economy as a nurse: 0.8

Value to economy as an engineer: 0.9

Here we see that, quantitatively, women are generally more valuable than men in this system. If UFTA requires that each trade be evenly balanced by sex, then the value of 100 men and 100 women to the combined economy would be (on average) 200. If UFTA pushes men and women toward their comparative advantages (nursing for women and engineering for men), the value of 100 men and 100 women would become (on average) 210.

What we can determine from this is that, even if women were better engineers than men, the field of engineering would end up over-represented by men because the women who could become good engineers would still make better nurses (or doctors or whatever female-dominant trade you want to substitute). If engineering were in higher demand than nursing in this scenario, it also means that a gender pay gap that favors men would still exist, despite the lesser abilities of men generally.

In the real world, however, women are not more competent than men. Most current data indicate that we are equally competent. Since we effectively have always lived in the context of an UFTA (where men and women coexist in a single economy), it should come as no surprise to anyone who accepts a free market that men fare better when the market wants the labor that they are primarily offering. Moreover, the existence of a gender pay gap as a consequence of comparative advantage between the sexes would mean that this is the most productive and efficient way to go for society at large. Fighting this trend through employment manipulation will inherently result in less “avocados” for everyone, men and women.

What do we do about this?

I mentioned earlier that NAFTA, while efficient, has problems. Where it allowed partners such as Canada and Mexico to expand some of their own operations, it also shut down a lot of manufacturing jobs in America that were not replaced. NAFTA should have been accompanied with a domestic plan for America to account for this, such as a tax redistribution system to sustain the losing households and develop new sectors of our own, but in vast swaths of Michigan and Ohio, this never happened or happened in unsatisfactorily small measure.

Being the progressive that I am, I can see that the gender pay gap, while a mark of efficiency, also has problems. If men tend to earn more, this means that marriage as a fair and equitable institution is not as much of a reality as we would like it to be, and many women will remain financially dependent on potentially abusive spouses. In a broader sense, with political leaders that are increasingly decided by donors and not by voters, this gives men, in general, more than their fair share of power in what is supposed to be a democracy. While manipulating employment is not the answer, government can create programs to account for some these shortcomings, by providing low-income women who divorce with financial support and making elections only publicly financed. This could help with some of the social woes while not throwing out the baby with the bathwater.

Other solutions, which I have not conceived, likely exist. The point is that, rather than try to tear down a system that has inevitable flaws, perhaps those on the egalitarian side might consider working out the kinks first. John F. Kennedy once said, on world peace:

Let us focus instead on a more practical, more attainable peace — based not on a sudden revolution in human nature but on a gradual evolution in human institutions…

I merely submit that the same mindset should apply to our labor practices.