How not to close the gender pay gap

In the US there are no federal laws or regulations that try to close the pay gap between men and women. And under the current government, you can rest assured that no such regulations will be introduced. So other developments that indirectly close the gender pay gap may have unintended consequences.

New research looked at what happened when the banking sector in the US was deregulated between the late 1970s and early 1990s. Back then, banks were increasingly allowed to offer lending and other banking products across state borders. This inadvertently reduced the gender pay gap in industries that had low gender pay gaps before banking deregulation.

Trust me, I didn’t get the connection either at first. However, industries with low gender pay gaps tended to be industries that relied more heavily on tangible assets and lower skilled labour. The effect of banking deregulation was to increase competition among banks and thus reduce the cost of loans for businesses. Companies with lots of tangible assets (i.e. machinery and other equipment) could increase their debt levels to buy newer, more efficient equipment and boost automation to make workers more productive.

Economic theory tells you that if companies become more productive, wages should rise, and the wage gap could shrink if lower-paid workers (who are disproportionally women) get larger wage increases than higher-paid workers.

The good news is that the gender wage gap did indeed close. The bad news is that it did not happen by women earning more but by men earning less. In essence, companies that became more productive were able to let some workers go. And they obviously reduced staff by laying off more expensive workers. If, at a later stage they needed to hire more workers to accommodate growth, they would prefer hiring people with lower wage demands.

But that’s not all. The study also showed that there was a migration of men from industries with low gender wage gaps to industries with high gender wage gaps. This migration was larger in counties and states of the US with stronger gender norms and more conservative attitudes. While the study shows no causation, it at least indicates that in reaction to more women joining the workplace, some men tended to self-select into industries that have fewer women working in them and/or have higher gender wage gaps.

The result was that over time, industries with low gender pay gaps tended to see their wage gaps decrease while industries with high gender wage gaps tended to see their wage gaps increase and become even more lopsided in gender composition than before.

Now, you may say that this is an interesting historical anecdote, but banking deregulation is over in the US and most industrialised nations. So why care? What ultimately drove this divergence in wage gaps and potential self-selection of male workers was the ability of companies to innovate and replace workers with machines. Today, we are at the cusp of another technological revolution where we will see large investments in AI and similar technologies that will allow some industries to become much more productive. That will lead to layoffs among workers and guess which ones will lose their jobs first? And how will these men react to these developments?