Highly trained women in the US workforce earn a fraction of what their male peers do.
Part of the discrepancy may come down to differences in men’s and women’s tastes for competition.
April 14 marks Equal Pay Day in the United States, the day the average full-time employed American woman would have to work till—over and above the previous year—to earn as much as her male counterpart. After decades of progress, the closing of the gender pay gap stalled in the late 1990s and now sits at 78 cents for every dollar earned by a man.
During the intervening time, the nature of the pay gap has also shifted. Where the gap was once largest among low-income women, the discrepancy today is concentrated at the top of the income distribution, with women in high-paying industries like finance and consulting earning just 50 percent of their male colleagues’ wages at mid-career, according to some estimates.
The drivers of the gender pay gap are varied and complex, deriving, as the White House’s Council of Economic Advisers noted last year, both from discrimination and differences in education, experience, propensity to negotiate salary, family responsibilities, and choices of occupation and industry. These differences in career choices between men and women account for about half of the pay gap in the US, but the drivers of those different choices — whether they reflect individuals’ preferences or perceived or actual discrimination — haven’t been entirely clear. According to new research from Ernesto Reuben, however, these decisions are driven at least in part by gendered differences in taste for competition.
Reuben, who with his co-authors tracked a cohort of MBA students from the beginning of their studies through seven years past graduation, points out that neither gender nor an individual’s competitiveness significantly predicted either their industry or experience prior to their studies. But by the time students begin applying for internships near the end of their first year of business school, significant gender differences between industries begin to emerge, with men gravitating toward finance and women toward consulting and other industries.
Critically, these gendered differences in initial industry selection cannot be explained by either individuals’ prior work experience or their competitiveness. “There’s a clear indication in the data that there is an aspect of career choice that is related to gender that we’re not explaining,” Reuben says, “and this seems to be something that’s clear to students and employers right from the beginning.” That early choice has a significant impact, with individuals in the sample who accepted jobs in consulting and other industries starting at an average of $10,000 and $30,000 less, respectively, than those in finance.
Even at this early stage, before factors like career breaks due to childcare come into play, a small but statistically significant gendered pay gap emerges. Even after controlling for industry, female graduates earn, on average, approximately $22,000 less than their male peers. Critically, however, Reuben and his co-researchers find that 9.9 percent of this gap can be explained by gendered differences in taste for competition as measured under experimental conditions.
The reluctance of women to compete—women in the sample were 22 percent less likely to elect a competitive challenge even after controlling for individual ability, self-assessment, and risk aversion— can be costly, with competitive individuals earning around $21,000 more than their less competitive counterparts, an effect nearly equal to that of gender. That lower propensity to compete further explains roughly half as much of the earnings gap as a full host of demographic characteristics and statistics related to an individual’s academic performance and psychological traits combined.
The most significant differences in compensation, however, emerge over time, as individuals begin to migrate out of the higher-paying but more onerous jobs in finance and consulting and into other industries. Here, individuals’ taste for competition strongly predicts whether they remain in the high-paying industries of finance and, in particular, consulting up to seven years after graduation, significantly inflating their lifetime earnings.
“There’s a strong indication in the data that there’s something about consulting and competitive people,” says Reuben. “They’re able to stay there, and they also seem to enjoy it more, because they choose to stay there.”
While the gendered gap in taste for competition that Reuben and his co-authors find is consistent with much of the existing research, Reuben points out that this difference is at least in part socially constructed. Competitiveness, he explains, is context dependent, and there are settings in which women can be highly competitive. Social cues, like the number of women in high-profile leadership roles, can further encourage women to compete at higher rates. A full solution to the problem, however, requires addressing both women’s and men’s approaches to competition. “As a society, we should incentivize women to compete,” Reuben says, “but we also need to give space to men to compete less.”
Ernesto Reuben is an Assistant Professor at the Columbia Business School. His research interests lie within behavioral and public economics. Broadly speaking, he investigates the role played by social norms and particular psychological traits on activities that are economically relevant for public policy and business strategy. One of his main interests is studying the microfoundations of prosocial and antisocial behavior.
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