Thursday, September 3, 2009

Correlation Between Women Working and Lower Wages

Earlier this week, I posted a controversial blog advocating gender-based discrimination in the workplace. My argument was that, because of the economic and social losses to society that result from women working, businesses should be free to choose to hire men over women. When I was talking with a friend about my argument, he suggested that I gather some data and put together an econometric study to see if the facts support my hypothesis that having more women in the workforce does actually result in lower relative wages. His idea was quite brilliant. Yesterday, I spent several hours pulling data from the Bureau of Labor Statistics, the US Census Bureau and numerous other official and academic sources. After accumulating the data, I assembled it all into a series of spreadsheets and performed some basic statistical analysis. For anyone who is interested, you are welcome to download my study. My study looks at the increasing percentage of women in the workforce, the increase in real GDP and the increase in wages, from 1948 through 2007. Real dollars are all indexed based on a 2005 level of inflation.

Note: The following section contains a bit of dry numbers and economic data. If you are not economically inclined, feel free to skip down to my summary.


(Click on graph to see full-size image)


This graph shows the growth in US population, the growth in the workforce, and the number of men and women employed during each year. In 1948, 41.7 million men were employed compared to 16.6 million women. In 2007, 78.2 million men were employed compared to 67.8 million women. This means that the male labor force grew by 88% in 59 years, while the female labor force grew by 308% in the same period. Total population growth was 108%. This illustrates that women entered the workforce at a dramatically high rate, far outpacing natural gains due to population growth. My analysis is that this mass entrance of women into the labor market directly resulted from the changing social values in America. More specifically, feminism is one of the leading causes of the dramatic change of the workforce composition.


(Click on graph to see full-size image)


This chart narrows the focus to the aforementioned composition of the workforce. In 1948, men composed 71.52% of the workforce, while women accounted for 28.48%. In 2007, men made up 53.58% of the workforce, while women held the remaining 46.42% of the jobs. The ratio of men to women went from 2.5:1 to 1.15:1 during the study period. For every one man who joined the workforce, three women also joined. This trend lasted unbroken from 1954 to 2004.


(Click on graph to see full-size image)


Here we are looking at the growth in average production per worker (real GDP divided by workforce size), average wage income, and real GDP per capita. Our nation has grown substantially richer since 1948, both in current dollars and in real dollars. The raw profitability of each worker has skyrocketed with our increases in technology and improvements in labor methods. Wages have also grown in the same period, although not at the same rate as profitability. From 1948-1974, profitability and wages rose at similar rates, but a major change occurs following that period. Since businesses exist to earn profit, they seek to generate the most money, while paying as little wages as possible. During the period from 1948-1974, average wages varied from 69.15% to 76.84% of average worker productivity. In simpler terms, on average, workers were paid about 73% of the value they contributed to the economy. Since 1974, worker productivity has grown faster than wages, resulting in a steady decline in relative wages, down to the 61% of contributed value that is paid in wages to workers today.


(Click on graph to see full-size image)


These are the raw values for the workforce composition and the average wage expressed as a percentage of average worker productivity. Wages rates fluctuate somewhat wildly in the 24 year period from 1948-1974 while maintaining a slight upward trend, and then consistently fall from 1974-2007. For more clarity I created a second version of this graph, which plots the polynomial trendlines of each variable.


(Click on graph to see full-size image)


The trendlines show the changes that are happening in a smoother and clearer fashion. As my previous charts showed, the percentage of women in the workplace has steadily risen, changing the fundamental composition of the workforce. Likewise, the percentage of men in the workplace has decreased, at a parallel rate. Meanwhile, though relative wages increased slightly from 1948-1974, they have consistently decreased since then. Presently, relative wages are 12 points lower than they were during the 1948-1974 period, which is a 15% decrease in relative wages. Unsurprisingly, lower relative wages is precisely the sort of effect we should expect to see, when applying Austrian economic theory to the labor market. Allow me to explain.

Economic theory centers around the concept of scarcity. Things have their value in direct correlation to the scarcity and desirability. The equilibrium price for any good or service is found where the demand and supply curves meet. All other factors held constant, there is typically an increase in price when a good or service becomes more scarce, or when demand increases. Likewise, all other factors held constant, prices decrease when a good or service becomes more abundant, or when demand decreases. Therefore, if supply increases faster than demand, prices fall. This is precisely how the labor market functions. Businesses determine the demand for labor, and workers applying for jobs determine the labor supply. When women join the workforce and apply for jobs there is increased labor supply. If the increase of demand for jobs does not keep pace with the increased supply of labor, then the price of labor (wages) falls.

Therefore, what we see happening in the graph is that initially, in the period from 1948-1974, demand for workers rose faster than supply, even with the influx of women into the job market. Because demand was rising faster than supply, there was a mild increase in relative wages. However, somewhere around 1972 market saturation was reached, and from that point on the labor supply grew faster than demand. Since women are the largest addition to the labor market, supplying 2.2 times more additional labor than men (after adjusting for normal labor supply growth due to population increase), it is clear that their addition to the workforce directly impacted relative wages. This is a completely normal and natural economic effect. When supply competition increases, prices fall. Economic theory would suggest that women joining the workforce en masse would cause wages to fall, and the historical data illustrates that indeed, as more and more women entered the job market, wages did fall, after a short period of lag.

Summary
Though correlation does not imply causation, we can clearly establish that there is a direct correlation between women joining the workforce and a drop in relative wages. As the percentage of women in the workforce increased from 28% to 46%, an 18% increase from 1948 to 2007, relative wages for all workers fell from 72% to 61%, a 15% cumulative drop from 1948 to 2007. During the period from 1948-1974, the average national employment was 38% of the nation, while during 1997-2007, the average national employment was 48%. This means that more people are working, but they are making lower relative wages than in 1948. In 2007, the average income was $55,680 real dollars. If relative wages were paid at the 1948 rate, the average income in 2007 would be $65,720 real dollars. This means that an 18% increase of women composing the workforce can be correlated with a 15% decrease in relative wages.

Based on this evidence, I would suggest that even neglecting the additional costs incurred by women working instead of remaining at home, there is a clear correlation suggesting that the economic effects of more women working results in monetary detriment to all workers. Though there are numerous economic factors involved, making it impossible to determine the precise impact of a higher percentage of females in the workforce, the economic impact is clearly sizable, probably resulting in at least $10,000 less average wages per year for today's workers, both men and women.






Editor's Note: If anyone knows where I can find Labor Statistics prior to 1948, I would be much obliged if you linked me to them. I would love to expand my study to 1913-2009.

6 comments:

  1. The problem with this analysis is that it does not account for two other significant factors: mass immigration and mass off-shoring/outsourcing, which can plausibly account for the decline of wages in a more direct causal fashion. If we avoided mass immigration and off-shoring, would the entrance of women lowered wages to the same extent or at all? As you can easily see, answering that question is nigh well impossible. In fact, it wasn't until the era of mass immigration and globalism began in the 1970s that wages begn to fall, which points to their decisive impact, rather than women.

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  2. Another possible explanation is that when a person has a vagina, you can pay them less.

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    Replies
    1. Then wouldn't everyone just higher women? It obviously would cost them less.

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  3. Interesting stuff. The most prosperous time in history for the majority of Americans was the late 1960's, isn't that fascinating? Median wages have declined by 50% when real inflation is accounted for. I hear every red herring that you can imagine to explain it: "not enough regulation, taxes are too high...ect" But, doesn't it make sense that the biggest factors effecting wages are supply of labor and demand for labor? So since the late 60's, immigration quotas have increased by 800% year over year. then women enter the work force. Then half our manufacturing leaves. So the labor market is 2x as large as the late 60's, but at half the price, so it means wages are only paying half, in real wages as 1969.

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  5. I agree with this article and I am a working mom. Supply and demand dictates and the findings are true. Now both parents in a family have to work because wages haven't kept up. I don't think it means women should not work but it just means one parent shouldn't. Maybe if society was more accepting of men taking on women's roles we wouldn't have been in this predicament

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