Economics of Gender

Chapter 10

Assist.Prof.Dr.Meltem INCE YENILMEZ

Women’s Employment and Earnings: Policy

• It takes a women 7 days to earn the same amount that a man earns in 5 days of work

• It takes 15 months for a woman to earn the same amount that a man earns in 12 months

• Women earn 76 cents for every dollar that men earn

• Therefore, there is indeed a pay gap between men and women

Government Programs to Combat Discrimination

• Historically women have been exposed to some form of sex discrimination – In the late 1800s and early 1900s there were

legislations limiting the extent of how much a female could exert herself in the workforce

• “Marriage and/ or pregnancy “bars”:– Examples:• A woman who is single when hired and

afterwards married would lose her job• Married women could not be hired for

certain jobs

How to Justify the Existence of Antidiscrimination Laws

• Equity:– If a certain type of person is not being hired

because of certain religious beliefs, race, or sexual orientation, laws need to be created to enforce the labor market to treat all participants equally

• Efficiency:– Allocation of labor skills throughout the

market is essential in order for the market to produce the most output from the market as a whole

Equal Pay Act of 1963

• First federal law dealing with sex discrimination

• Law stated that it is illegal to pay different wages to men and women– Equal Work• Work that requires equal skill, effort,

and responsibility and is performed under similar working conditions

• This law only covers wage discrimination

Civil Rights Act of 1964

• title was amended several times, to cover– Government and Unions members– Pregnancy– Sexual Harassment

Enforcement and Interpretation

• Enforcement of the Title VII and Equal Pay Act is through the Equal Employment Opportunity Commission (EEOC)

• This independent 5 member agency is appointed by the President, approved by the Senate

• Large employers (over 100 employees) and government contractors (over 50 employees) must fill out an EEOC-1 form with demographic data

Disparate Treatment and Impact

• Disparate Treatment = Individuals are treated differently and there is intent to discriminate

• Disparate Impact = Individuals are treated differently but there is no intent to discriminate

Civil Rights Act of 1991

• This law favored employees• It occurred in response to several

Supreme Court decisions (PriceWaterhouse vs. Hopkins)– Responsibility was back on employers

to demonstrate business necessities • As a result of this law, employee’s rights

were not limited when suing employers; also, it provided the right to trial by jury

Criticisms of Affirmative Action

• Reverse Discrimination: Is said to occur when less qualified women or minorities are hired in place of more qualified white males

• Quotas: Critics say that it is a de facto quota system even though Title VII expressly forbids quotas

Measuring Poverty

• Absolute Measure of Poverty– People need a minimum level of money to

meet everyday needs—if one’s monetary resources are below this, he or she is deemed poor

– Advantages of this measure: Measures poverty in terms of necessity

– Disadvantages of this measure: Need is relative to the surrounding living standards

• Relative Income Poverty Measure• A family is deemed poor if its income is

less than 1/2 of the median family income• Advantage of this measure: It takes into

account the standard of living• Disadvantage of this measure: If the

income distribution never changes, it is impossible to eliminate poverty although poor incomes may increase dramatically

Why Are Women More Likely to Be Poor?

• Feminization of Poverty: The gender difference in poverty rates have grown over the last 50 years

• This is measured by the proportion of females who are poor OR by the sex-poverty ratio (the ratio of female to male poverty rates)

• If the sex-poverty ratio is greater than 1, women have a higher poverty rate than men

• Women are paid less; this accumulates through a lifetime• Women are more likely to take part-time jobs• Women are more likely to work intermittently; thus they

often have less work experience and less wage growth• Women often take jobs that pay less

– More single parent families are headed by women (because of divorce or out of wedlock childbearing)

– Women are more likely to get custody of their children if divorced• Child support payments have been drastically

lowered• Estimates indicate that 50 percent of child support

awarded is not paid• Women live longer than men

– They have smaller pensions and lower social security benefits

The Marriage Tax

• A marriage penalty or marriage tax occurs when a married couple pays more income tax as a married couple than if they had each been single and filed separate tax returns

• A marriage subsidy or marriage bonus occurs in the opposite situation, when a married couple pays less income tax as a married couple than if they had each been single and filed separate tax returns

Brief History of the Marriage Tax

–Marginal tax rate: The rate paid on the last dollar earned

– Progressive tax: Marginal tax rate increases as income increases

– Taxable Income: Income after deductions and exemptions are factored in

• The 2003 Economic Growth and Tax Relief Reconciliation Act (EGTRRA)– Two marriage tax relief provisions• Increased the standard deduction for joint

returns to twice the size of the standard deduction for single returns• Increased the width of the 15% marginal

income tax bracket for joint returns to twice the width of the 15% marginal income tax bracket for single returns

– Both were originally scheduled to be phased in over a five year period starting in 2005, but instead were accelerated

– Only those couples who take the standard deduction will benefit

• Output: For single person: ZM and ZF and married-couple household: ZMF

• Share of Output:– Amount of ZMF to husband = SM

– Amount of ZMF to wife = SF

– SM + SF = ZMF

• Marriage “rule”:– Marry if expect to be better off– Male: marry if SM ZM

– Female: marry if SF ZF

• Implies that for a married couple:– SM + SF ZM + ZF

– So: ZMF ZM + ZF

• Taxes reduce earnings and thus reduce the gains to marriage

• We learned that the marriage tax is greatest for those couples with similar incomes

• Depending on how much couples make and how much ZMF falls, if it falls below ZM + ZF then couples face a disincentive to marry

Taxes and Labor Supply: Theory and Evidence

• The decision to work is clearly an economic decision

• Let’s assume a traditional family structure; i.e. where the husband is the primary earner and the wife is the secondary earner

• Because of the progressive nature of our tax system, the wife’s earnings are typically taxed at a higher rate than the husband’s

• This higher tax rate effectively lowers the wife’s wage– The substitution effect tells us that the

wife will work less because the opportunity cost of home production time has decreased

– The income effect tells us that the wife will work more because her income has decreased

– Thus, the MVTM curve may shift up or down

• A marriage neutral tax could be created by taxing the individual instead of the family, as is done in Canada, Sweden and the U.K., as well as some other countries

• A second-earner deduction or a proportional income tax would both eliminate the marriage tax/subsidy

• Should we tax marriage?–Married couples enjoy economies of

scale – But, marriage has societal benefits

implying that we might wish to subsidize it

Family Structure and Social Security Benefits

• Social Security is biased toward the traditional family structure; i.e. where a couple involves a man working in the market place and a woman specializing in household production

• With respect to social security, wives who work in the formal labor market like their husbands essentially subsidize those women who do not

Women, Retirement and Social Security

• What happens to women upon retirement?• They face greater challenges then men– They live longer, they earn less than

men, they are less likely to have a pension and if they do have one it tends to be smaller than a man’s

• Social Security is thus an important part of an elderly woman’s income and financial well- being—Over 40 percent of elderly women rely almost exclusively on social security

Women and Pensions

• Many retirees have access to pension income in addition to social security

• Two types of pensions exist:– Defined Benefit Plan• Company invests the money (portion of

employees salary) and guarantees employee a certain amount of money upon retirement

– Defined Contribution Plan• Benefits determined by money paid into an

account by employee and employer, return on investment determines worth at retirement, example is the 401K plan

Women and the Future of Social Security

• Another suggestion for reform is Earnings Sharing—This would involve assigning an equal share of family income to each spouse and then dividing the earnings credits between them