The MR Podcast: Our Favorite Models, Session 3: Compensating Differentials and Selective Incentives

On The Marginal Revolution Podcast this week, Tyler and I discuss compensating differentials and Olsonian selective incentives. Here’s one bit:

If you think about the gender wage gap, it’s sometimes said that women earn—it varies—80 cents for every dollar that a man earns. That doesn’t control for anything. Once you control for education and skill and so forth, this gets smaller. Then you also have to control for these quite difficult, elusive sometimes, job amenities. Claudia Goldin, for example, has pointed out that men are much more willing to take jobs requiring inflexible hours.

COWEN: And longer hours, too.

TABARROK: Longer hours and inflexible hours, where your hours are less under your control. That’s what I mean by inflexible. For example, in one study of train and bus drivers, the train and bus drivers are paid equally by gender. There’s no differences whatsoever in what they’re paid on an hourly basis. It turns out that the male drivers, their wages, their returns are much higher because they take a lot more overtime. They take 83% more overtime than their female colleagues. They’re much more likely to accept an overtime shift, which pays time and a half. The male workers also take fewer unpaid hours off. The male salaries on a yearly basis end up being higher, even though males and females are paid equally.

Now, you can roll this back and say that’s because of the unfair demands on women of childcare or something like that, but it’s not a market discrimination. It’s not market discrimination. It’s a compensating differential. Males earn more because they’re more willing to take the inflexible overtime hours and so forth.

One of the most interesting ones is that Uber drivers, male drivers earn a little bit more. Now, obviously, there’s no gender difference whatsoever in how the drivers are paid. It just turns out that male drivers just drive a little bit faster.

COWEN: I’ve noticed this, by the way, when I take Ubers.

TABARROK: On an annual basis, they make about 7% more. Now, again, it’s not entirely obvious that this is even better for the male drivers. Maybe they’re taking a little bit more risk. Maybe they’re a little bit more likely to get into an accident as well.

….COWEN: …Someone gets the short end of the stick. Not only women, but maybe women on average would be more likely to suffer.

TABARROK: I’m not sure it’s the short end of the stick, though I agree with increasing returns, that the people who work longer hours will also earn higher salaries and maybe have plush offices and so forth. Let me put it this way. One of the things which I think the feminism story sometimes gets a little bit wrong is to actually underestimate the value that women get, and that men can get as well, of childcare, of looking after kids, of spending more time at home, or spending more time doing childcare. That can be extremely valuable. At the end of life, who writes on their tombstone, “I wish I could have worked more”?

COWEN: You’re looking at one.

TABARROK: Present company excepted.

Here’s the episode. Subscribe now to take a small step toward a much better world: Apple Podcasts | Spotify | YouTube.