05/12/2014 10:58 am ET Updated Jul 10, 2014

Reshaping What We Think About the Gender Pay Gap

Equal pay in the workplace is viewed as the next step in combating gender inequality. Just last month, President Obama signed two executive orders that aimed at narrowing the gender pay gap, but one study proposes that the solution to equal pay does not have to involve government intervention. In her 2014 Presidential Address to the American Economic Association, Claudia Goldin explained that the most important factor in reducing the gender pay gap is for employers to offer and not penalize greater work schedule flexibility.

In the past, gender inequality was explained by human capital differences between men and women, including differences in the level of education and years of experience. But today, much of the human capital differences has been squeezed out as more than 75 percent of working age women participate in the workforce (compared to under 40 percent in the 1950s) and more than half of all college graduates are female. The convergence of human capital differences between men and women suggests that there must be another explanation for the remaining gender pay gap.

US data provide two clues to finding the explanation. First, the gender pay gap widens with age. Take a woman born in 1968. When she was 26 years old and had just started her career, her annual earnings was, on average, 90% that of her male counterpart. By the time she turned 40, her annual earnings was only 75% that of her male counterpart. This trend is uniform across birth cohorts and parallels the intuition that women's earnings decrease as they become mothers and have more childrearing responsibilities. It is not only that women work fewer hours, but in many occupations they also receive less per-hour pay than do their male counterparts.

Second, Goldin observed that the gender gap differs greatly by occupation and most wage differences are concentrated within occupations, which means that women earn less not entirely because they choose to work in lower-paid professions--her data show that occupational choice only explains 30 percent of the pay gap. She also found that the earnings gap is especially large in law and business occupations and less pronounced in science, technology and health occupations.

The findings that starting salaries for men and women are comparable and that the pay gap differs by occupation counter the common rhetoric that gender discrimination mostly explains the gender pay gap. According to Goldin, it has more to do with the different occupations' flexibility in work hours.

The difference in the pay gap across occupations is related to the nature of the work. Consider law and business occupations where the work is highly interpersonal and emphasizes building face-to-face relationships with co-workers and clients. When an employee is not around for a team meeting, she brings down the team's productivity because she has missed the information conveyed at the meeting. When an employee is unavailable to serve her client, her expertise in that particular case makes it hard for the employer to substitute her with another employee. Her absence or time-off is costly for the firm and so her value to the firm decreases.

Because an employee's productivity is tied to being available, these occupations award a premium on working long hours--someone working 80 hours per week will make more than double the person working 40 hours per week. This work structure is especially harmful for women because they tend to require more flexible hours to accommodate childbearing and childcare. But anyone who needs to work flexible hours or take time off is less productive to the firm so will be paid less, whether male or female.

Health occupations have not always had smaller pay gaps but today they do. Certain occupations in the health industry have successfully leveraged the use of information systems to make work schedule flexibility more feasible and less costly to the organization. Goldin examines the pharmacy profession for insights.

Today when you walk into any pharmacy, the pharmacist on duty can see all of your past prescriptions online. Pharmacists are highly paid but they are also essentially interchangeable; the spread of vast information systems and the standardization of drugs have enhanced the ability of pharmacists to hand off clients costlessly. As a result, if a female pharmacist needs to work fewer hours for childcare, she will be paid less for working less but not paid a lower hourly wage. Holding constant hours worked, the gender pay gap among pharmacists almost vanishes.

If some occupations, like pharmacist, have successfully integrated information systems to allow for more flexibility in work schedules, then why are law and business occupations not making this shift? Goldin emphasizes that law and business occupations need to change the structure of the work so that it involves greater independence and autonomy and should allow employees to substitute seamlessly for each other.

Goldin suggests that these changes do not necessarily require government policy intervention and can be implemented at the firm level. Although Goldin encourages all occupations to make such changes in the work structure, she does not discuss the feasibility of this transition. Interpersonal and trust-based client relations define good service in law and business; what has been done in pharmacy with information systems might not be possible to do in law and business. In these professions, we may not be able to reduce the gender pay gap much further unless women stop having children or there is more equal sharing of childcare responsibilities between husbands and wives.