Lecture 16-17: The Gender Wage Gap and Externalities

Judicial Recourse

Another route for resolving externality issues is to seek relief or redress from the courts (the judicial branch).

Why can overcoming the problem of externalities can be really difficult?

First, the decision-makers might not even know that their decisions affect others (either for good or ill). Second, even when decision-makers know that their decisions affect others they might not care. It's literally someone else's problem.

Coase Theorem

If the following three conditions hold:The basic rights at issue are assigned and clearly understood (that is, there are well-defined, recognized, and enforceable property rights).There are no impediments to bargaining (that is, transaction costs are low or zero).Only a few parties are involved.Thenbargaining can reach the efficient solution regardless of where rights are initially assigned.

The Pivotal Role of Social Expectations

If women choose to do—or are pressured to take on—more of the family care (either for children or elders) due to strong social norms or pressures, to what extent is the consequence of lower pay really a result of their choice, and to what extent is it more fundamentally about broader questions of equality in society? -For many observers, the asymmetric social pressures for caregiving are a manifestation of broader, deeper forms of gender discrimination.

MPC + MDC =

MSC

What are examples of externality?

Noise, Traffic, Smog, Crime War, War

Taxes or Subsidies

One solution is to tax the decision-maker (i.e., the firm or consumer) exactly the amount of the external cost (that is, the cost not felt by the decision-maker) :With this tax in place the decision-maker will now be forced to take the external cost into account. This means that it will no longer be an external cost. Goods with positive externalities can be charged a negative tax—i.e., subsidized—to reach the socially optimal level (examples: cheaper vaccinations, tax credits for clean energy improvements).

(Possible) Applications of Coase Theorem

Paying nearby residents not to complain about the noise of wind turbines Reclining of seats in airliners?My neighbor's backyard light?

Bargaining and Negotiation

Private bargains and negotiations may lead to an efficient solution in some situations involving externalities without any (direct) government involvement at all. This argument is referred to as the Coase Theorem, named for Ronald Coase, who did work on the subject in 1937 and 1960.

BRVW: Is This Explicit Discrimination?

Probably sometimes. However, there's some evidence that it's ingrained. Experiments showing people photos of other individuals and asking "if you needed help, which of these people would you be most likely to ask?" show that women are chosen overwhelmingly. There are deep social norms at work. Individual reputation building likely also plays a role. It's probably harmless to step up to the plate once or twice, but that can establish a reputation that makes a worker a target for non-promotable assignments in the future.

BRVW: Two Types of Work Tasks

Promotable: doing a good job on this task can lead to bonuses and/or career advancement -Law firm example: taking a high profile case -Professor example: publishing a research paper Non-promotable: these tasks have to be done by somebody, but doing a good job doesn't lead to any longer-term benefits -Law firm example: taking a low profile case -Professor examples: teaching a large introductory course, advising, or service on campus committees

BRVW: Results

The button is pushed 84% of the time. -Women are 67% more likely to push the button than men. -Over 10 rounds, 2/3 of men push the button ("invest") 2 or fewer times. -Over 10 rounds, 2/3 of women push the button ("invest") 3 or more times.

What is the conditional wage gap?

The conditional gender wage gap is the wage gap between genders that's left after taking into account job type, education, experience, type of position, and any other relevant factors.

Which wage gap is smaller, but not zero?

The conditional wage gap

Other Ways to Internalize Externalities?

The efforts of Mothers Against Drunk Driving Campaigns for flu shots and other vaccines Anti-tobacco ad campaigns

What is the unconditional gender wage gap?

The gender wage gap when we don't take into account anything else other than gender. Ex: job type, education, experience, whether it's a part-time or full-time position, and so on...

Selling or Auctioning Pollution Rights

The right to pollute may be formulated as a property right regulated by the government. Producers are issued or sold tradable pollution rights by the government (perhaps a fixed cap). These rights can then be bought and sold by producers among themselves. Dirtier plants will need to purchase more costly permits, and may instead shut down. The common term cap-and-trade refers to this kind of system.

In the United States, how many cents do women earn for every dollar men earn?

77 cents

Caveat of wage gap

This issue becomes political very quickly, and there is a lot of loud debate among researchers, pundits, and policymakers (not to mention employers, workers, and potential workers). Which is to say, there are lots of normative questions surrounding any and all positive statements made about the gender wage gap, its causes, or any potential remedies.

Three Overall Camps

Three main positions/schools of thought on the matter: -One group that argues that the gender wage gap is largely (or entirely) due to choices that women make, so no action needs to be taken in terms of policy. -One group that argues that the gender wage gap is due to more than women's choices and therefore protections and systemic changes are needed. -One group concedes that the choices of women form much of the wage gap but points out that the choices women make—or are forced to make—result from social norms and expectations, as well as workplace norms and structures.

BRVW: Idea—Run Single-Gender Sessions

To answer this question, the authors ran single gender sessions. Now, men know they are grouped with only other men and women know they are grouped with only other women. If players are aware of and responsive to these gender differences, their behavior should change.

What are examples of positive externalities?

Vaccinations Picking up litter Basic research (which can later inspire applied research)Education?

Externalities are

a cost or benefit resulting from some activity or transaction that is imposed or bestowed upon parties outside the activity or transaction.Sometimes called spillovers or neighborhood effects.

An injunction is

a court order forbidding the continuation of behavior that leads to damages.

Positive externalities are

benefits bestowed to others.

Negative externalities are

costs imposed on others.

Taxes, subsidies, legal rules, and tradable permits are all methods

indirect regulation designed to induce firms and households to weigh the social costs of their actions against the benefits.

MDC= marginal damage cost

is the extra cost per unit to everyone else

MPC= marginal private cost

is the extra cost per unit to the decision maker (or firm)

MSC= marginal social cost

is the extra cost to everyone in society

Liability rules are

laws that require A to compensate B for damages imposed if A is found legally responsible for causing harm.

Externalities can be

negative or positive.

positive externalities also lead to

suboptimal outcomes.

Direct regulation is

when the government mandates (more) socially efficient outcomes through: -Specific laws (actions of the legislative branch: Congress) -Specific regulations (actions of executive branch agencies, such as the Environmental Protection Agency (EPA))

what you do affects others:

-All of the time, whether you realize it or not. -In big ways and in small ways. -In good ways or in bad ways.

Why might it be very difficult to determine or collect the optimal level of the tax.

-Estimating the external cost might be tricky, and it might involve subjective and fuzzy things that are difficult to measure. (Scenic view? Quality of life? Prevalence of biodiversity?) -The optimal tax should be set so that it is equal to the external cost, but that cost could be of different sizes depending on the quantity produced (or consumed) or depending on the day or even the time of day (like traffic congestion). -If the tax is relatively large it leaves a lucrative opening for illegal and underground suppliers.

BRVW: Experimental Design

-Individuals are placed into groups of 3 -The task is very simple: everyone sits in front of a big red button. Only 1 person can push it. If it doesn't get pushed: everybody earns $1 If someone pushes it, the two people who didn't push it earn $2. The person who pushes it earns $1.25. A clock counts down 2 minutes.

BRVW: Core Ideas

-This study explores to willingness to say no to and avoid non-promotable tasks. -When employees are asked to perform non-promotable tasks, are there gender differences in who "takes one for the team"?

BRVW: This Really Looks Like It's Strategic

-When men don't see women in their group, they respond by pushing the button (investing) just as often as women do. -There's a select group of women who respond to seeing only other women in their group by not investing at all. -Overall button-pushing rates are the same across both genders when the groups have only men or only women.

BRVW: Fixed Characteristic, Or Strategic?

-Women are much more likely to step up to the plate to perform a task that helps the group but at a cost to themselves. -Is this a fixed characteristic or is it strategic? In other words, is the behavior of women participants always the same, or does it depend on who else is playing in their group?

(BRVW) that examined one reason why the gender wage gap might persist or even increase over time

-Women spend 7.5 fewer hours per week on research -Women spend 4.6 more hours per week on committees -Women are more likely than men to experience negative emotions (anger, guilt) when turning down requests for favors

Claudia Goldin argues (with ample data!) that two of the big reasons the gender wage gap hasn't closed are:

1. Differences in how firms reward those who work fixed hours versus flexible hours -Having workers work fixed hours is often cheaper and more convenient for firms or managers, so they may be willing to pay more for that arrangement. This can instead be thought of as a "reward" for fixed work hours. -Plus, if there is a larger supply of labor for jobs with flexible hours—which is intuitive—it would be expected that the equilibrium wage of the flexible jobs would be lower. 2. Differences in the strength of preference for workplace flexibility across the genders -Women—either married or unmarried—who have children spend more time and effort taking care of their kids. -Women take on a disproportionate share of elder care when families take in older relatives with declining health. -Women thus more often seek and take jobs with more flexibility (or perhaps no job at all).

five main approaches to internalizing externalities for decision-makers/What can be done to get decision-makers to care?/How can we internalize the externality for them?

1.Private bargaining and negotiation (Coase Theorem) 2.Sale or auctioning of rights to impose externalities 3.Judicial recourse (injunctions, lawsuits) 4.Government-imposed taxes and subsidies 5.Direct government regulation (bans, caps, quotas) loosely ranked from the methods involving the least government intervention (#1) tothe most (#5).