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OCR for page 44
Wage Differentials and
Institutional Features of
Labor Markets
What features of the wage-setting process create the differences in
wages observed between men and women and between minorities and
nonminonties? What explains the extent of job segregation observed?
Why do these differences persist? In this chapter we take an institutional
view of labor markets in examining these questions, and we argue that
it is likely that some portion of the wage differentials observed can be
regarded as the result of discrimination, both intentional and uninten-
tional. In reviewing~a variety of explanations for the existence of dis-
crimination offered by economists, we note that none of them satisfac-
torily explains the causes of discrimination, but each suggests that it is
plausible that discrimination exists. Finally, we briefly consider the im-
plications of the complexity of labor markets for implementing policies
to reduce discrimination and its effects.
LABOR MARKETS
Of today's employed civilian labor force of approximately 100 million,
about 90 percent work for wages or salaries (the rest are self-employed).
For employees, access to jobs, wage levels, conditions of work, and
other aspects of employment are determined by the operation of labor
markets. In the conventional mode] of perfectly competitive labor mar-
kets' demanders and suppliers of labor possess complete information
and total mobility; the bargaining of individual employees and employers
and the unfettered adjustment of supply and demand determine the
44
OCR for page 45
Institutional Features of Labor Markets
45
wage of each worker; consequently, the wage of each worker exactly
equals the value of his or her economic contribution (i.e., marginal
revenue product). But workers rarely participate in the labor market
with full information or mobility' are often not aware of all opportun-
ities, and are not likely to have access to all of them (Rees and Schultz,
1970~. Similarly, employers rarely have access to all possible employees
and are often constrained by custom, agreements, and other factors.
Major institutional constraints include internal labor markets (arrange-
ments in which most positions are filled by promotion from within a
firm); union agreements that determine hiring rules and pay rates; and
the segmentation of labor markets into noncompeting groups, largely
on the basis of the sex, race, and ethnic~ty of workers. While institutional
economists acknowledge that wage rates observed in the market reflect
the forces of supply and demand, they point out that supply and demand
are themselves strongly affected by institutional factors. In this view,
ng~dities and barriers to mobility characterize labor markets, and ine-
qualities in wages between workers with similar qualifications doing
similar work are endemic.
Institutional analysis differs from the more conventional neoclassical
analysis of the operation of labor markets in its emphasis on the im-
portance of institutional features and their relative inflexibility in de-
termining wages and other conditions of employment. In the judgment
of the committee, the institutional view offers a more fruity perspective
from which to understand the existence and the persistence of wage
differentials between men and women, especially since, as we note in
Chapter 2. attempts to explain earnings differences by productivity dif-
ferences hare not been very successful. Our discussion? which focuses
on institutional features, should not, however, be interpreted as a com-
prehensive review of all approaches to understanding the operation of
labor markets. The institutional view is only one view of labor markets,
and is the subject of much controversy currently in economics and so-
c~ology`(Doeringer and Piore, 1971; Wachter, 1975; Gin, 1976; Beck
et al., 1~978; Piore, 1979; Hauser, 1980; England, 1982~.
COMPARABLE WORTH AND INTERNAL LABOR
MARKETS
Issues invoking the comparable worth of jobs emerge most clearly
and acutely in situations in which a single firm employs a large work
force allocated among many different types of jobs. Such situations are
furry common, since at least half of the U.S. work force is employed
by large-scale employers: 20 percent of all wage workers are employed
OCR for page 46
~6
WOMEN. WORK, AND WAGES
by federal, state, and local governments, and 40 percent (nearly half of
those in the private sector) work in private establishments that employ
100 or more workers (U.S. Bureau of the Census, 1979:xxiii). The 500
largest industrial corporations (the Fortune 500) alone employed 16
million workers in 1979, about 45 percent of all workers in manufacturing
and mining, averaging about 32,000 workers per company. The largest
U.S. industrial employer, General Motors, has more than 800,000 em-
ployees, and the largest nonindustnal employer, American Telephone
and Telegraph, has about 1 million employees.
For most of these workers the conditions of employment are deter-
mined largely by administrative rules, promulgated by employers or
negotiated by employers and unions (about a quarter of all U.S. non-
agncultural workers are members of unions). Once an employee enters
a large~scale establishment, he or she becomes part of an "internal"
labor market in which job openings are usually filled from within and
workers are usually deployed in accordance with established rules and
procedures rather than in direct competition with workers in the '`ex-
ternal'' labor market. For many workers, movement into (and between)
large firms with highly organized internal labor markets is quite limited
(Doeringer and Piore, 1971; Edwards, 1979~.
Several theories seek to explain why internal labor markets are cre-
ated. Doennger and Piore (1971) argue that because modern technol-
ogies require specificity of skills and relatively long periods of on-the-
job training at the employer's expense, employers attempt to minimize
turnover and enhance the stability of the labor force by creating job
structures within firms that reward longevity~uch as increments based
on seniority and promotions up well-defined job ladders. Economic
forces operate on employers, of course, but they operate mainly to
encourage employers to m~nun~ze their training costs by minimizing
turnover. Thurow (1975) suggests that higher wages are needed to
"bnbe'' older workers to teach their skills to younger ones. Gordon
(1972) and Stone (1975) suggest that the existence of many different job
ladders, each with several rungs, may not be required by differences in
skill levels but instead may serve to diode workers (particularly by race,
cthnicity, or sex), thus minimizing the collective power of the workers
and enhancing that of the employer. Edwards (1979) argues that man-
agement creates internal job structures pnmanly D order to provide
incentives for workers to perform their jobs, rather than because of skill
requirements. Kahn (1976) provides an example of a union taking the
Icad role in transforming a capncious, casual labor market in longshonng
Into a highly structured one, primarily to reap such benefits as higher
wages, sen~onty iDacases, and employment stability.
According to all these explanations, job structures that entail many
OCR for page 47
Institutional Features of Labor Markets
47
rungs on ~ long ladder, each step requiring greater skill or involving
more pa, and responsibility' are established. Only for entry-level jobs
are wage rates strongly influenced by the competitive forces of supply
and demand. The major supply for the jobs higher on the ladder are
those workers already in the firm, and the only effective demand for
those particular workers is that of their current employer. Some of the
jobs have few, if any, analogues in the external labor market and no
established market wage rates; rather it is the employer, and possibly
workers, who determine appropnate wage rates for the jobs.
If internal!, organized jobs were directly open to external market
competition, employers would find little use for extensive compensation
analysis (except perhaps for area wage surveys to determine the "going
waged. The fact that many large firms use such analyses, particularly
scat evaluation, to tonic internal fobs to particular "benchmark" jobs
jobs that do have external markets and external wage rates (Treiman,
1979 - supports the notion that, within broad limits, such jobs are
shielded from immediate external competition. Additional sources of
institutional rigidity, arise from the prevalence of custom and tradition
In setting wages (see, for example, Phelps-Brown, 1977; Wootton, 1955)
and the relative immobility of workers between liens. Since access to
higher-paying jobs comes only from within a firm, workers stand to
benefit by remaining with that firm, generally do not seek jobs eise-
where, and ma, be unaware of other opportunities.
. . .. . . . .
SEGMENTATION OF THE LABOR MARKET
The existence of internal labor markets and other institutional features
has led some researchers to the concept of labor market segmentation.
The part of the economy characterized by highly articulated internal
labor markets is called the primary segment. It consists of industries
with advanced technology, large capital investments, unionization,
sometimes a degree of insulation from competition In their product
markets, or high profit~industnes such as petroleum, chemicals, heavy
equipment manufacture, and utilities (Bluestone, 1970; Doennger and
Piore, 1971; Edwards, 1979~. Industries that require highly educated
workers, such as computer manufacture and service, insurance, and
finance as well as most of the public service sector, also tend to have
well-developed internal labor markets with established channels for ad-
vancement and predictable work rules and hence are also part of the
primary segment.
The remaining jobs in the economy constitute what has been awed
the secondary segment. These jobs have little Pupation from compet-
itive market pressures and more closely approximate the textbook mode}
OCR for page 48
48
- ~
WOMEN. WORK, AND WAGES
of a perfect market. In addition, they generally tend to have "low wages
and fringe benefits, poor working conditions, high labor turnover, little
cnance or advancement, and often arbitrary and capricious supervision"
(Doeringer and Piore, 1971:165~. Such jobs tend to be found in highly
competitive industnes with low capital investment, little unionization,
and low profit~many service-onented industries and such manufac-
tur~ng industries as textiles, garment making, and food processing (Blue-
stone et al., 1973; Tyler, 1978~. The secondary segment includes many
jobs requiring relatively little job-specific skill-attendant, guard, food
server, sales clerk, stock clerk, messenger, and cleaning worker; sea-
sonal jobs, particularly in agriculture; and increasing numbers of clerical
jobs in typing' filing, and keypunching pools. For all these jobs, the
most salient distinguishing feature is the relative insecurity or lack of
an internal market structure that is, the immediacy with which these
jobs are subject to external market forces (Edwards, 1979~.
Although primary jobs are thought to prevail in large firms and in-
dustries with a historical pattern of structured internal labor markets,
and secondary jobs to prevail in enterprises with no formal internal
labor markets' both types of jobs may exist side by side. For example,
service jobs in hospitals exist alongside medical and nursing jobs; and
janitonal and packaging jobs in large firms exist alongside skilled craft
jobs. But in neither case do the secondary jobs feed into job ladders
leading to the primary jobs.
Jobs traditionally held by women teaching, nursing, and secretarial
work have some features of organization that are more characteristic
of a secondary than a primary pattern. Despite relatively high levels of
skill, the wage levels of these jobs are often low. For example, in 1976
in manufacturing industries sampled by the Bureau of Labor Statistics,
12 of 26 clerical occupations were paid less than janitors (Ward, 1980~.
Jobs traditionally held by women often have short job ladders. It has
been noted that these jobs ohen involve general~zable skills that can be
moved from one job to another, the acquisition of which is paid for by
women themselves (Oppenheimer, 1970~. One plausible explanation of
these attributes is that they have evolved because employers, believing
women to have short job tenure and high turnover rates, have been
unwilling to bear large training costs or to structure these jobs in such
a way as to make their investments in training pay off in greater lon-
gevity.~
' O~cr job stmeturcs for these occupations are possible. Sccrc~ial work, for example,
could be organized as a skilled craft with apprenticeships, catry~lc~cl jobs, and career
ladders, pardadarly when firm-specific Wills "c important.
OCR for page 49
Institutional Features of Labor Markets
TABLE 12 Distribution of Earnings in Selected Occupations in the
Newark Metropolitan Area, January 1980
49
Earnings.
Occupation
Median Ranger
Hourly. Straight Time
Electncians. maintenanceS8.63 S6.40 14.00
Mechanics. maintenance (automotive)9.05 5.6~11.80
Tool- and diemal~ers8.78 6.0~11.80
Forklift operators6.69 3.5~9.30
Order fillers4.85 3.30.90
Weekly, Straight Time
Stenographers. seniorS250.50 S140.0~340.00
Sccretanes. class A328.00 200.0460.00
Key entry operators class B180.00 120.00 340.00
Draftsmen. class A379.50 260.0600.00
Computer programmers (business) class A352.00 240.~.00
}registered industrial nurses291.50 180.0(~480.00
~ Exclusive of premium pa, for overtime and for work on weekends, holidays, and late
shifts.
Lee lowest and highest rates received by the workers surveyed.
SOUR - : U.S. Department of Labor, Bureau of Labor Statistics, 1980a.
In contrast, it has been claimed that employers respond to the pos-
sibility of men leaving their jobs after costly training has been invested
in them by structuring the jobs in such a way as to discourage turnover
and reward longevity. The consequence of this difference in the way
"women's' and "men's' jobs are usually structured is that jobs that
traditionally have been held by women often have more exposure to
marketplace competition and provide less advancement with seniority
and experience than jobs that traditionally have been held by men.
Although institutional theorists disagree about some of the causes,
a sizable (and growing) empirical literature presents a fairly consistent
picture of labor market segmentation.2 Mat jobs are segmente~not
only occupations is indicated by the range of wages paid for very sirrular
work, a phenomenon that has been well known for some time (Wootton,
1955; Chamberlain and Cullen, 1971~. Table 12 shows considerable var-
iation in a sample of occupational wage rates paid by surveyed estab-
lishments in one metropolitan area, Newark, New Jersey. For this sam
2 The following summary of the empirical literature on labor market ~cg~DcDtation relics
busby on Edwards (1979~.
OCR for page 50
50
WOMEN. WORK, AND WAGES
ple the highest-paid workers generally received more than twice as much
as the lowest-paid workers in the same narrowly defined occupations.
Other research confirms the existence of high-wage and low-wage firms
that tend to pay consistently high or low wages to all employees (Rees
and Schultz, 1970; Blau, 1977; Ward, 1980~. This wide variation in wages
renects an underlying structure of segmented labor markets.
Early research posited the existence of segmented labor markets.
Doennger and Piore (1971) found through extensive interviewing that
decisions about hiring, pay, and termination are made in very different
ways in the primary and secondary segments, the secondary segment
being characterized by arbitrariness and the primary segment by sys-
tematic procedures. Several historical studies suggest that in job search
processes, workers in..the secondary segment, particularly minority
workers, have been restricted by lack of information and in many cases
by discnmination in access by employers. Minority workers in particular
often perceive that only a narrow set of jobs is open to them, and they
use very limited community networks to find jobs (Baron and Hymer
1968; Baron. 1971; Glenn, 19801.
The appropriate way to define labor market segments quantitatively
is a matter of considerable debate. Theory suggests that they should be
defined by such characteristics as occupation, industry stability, auton-
omy, unionization, and advancement opportunity. In practice, infor-
mation on all these relevant characteristics is rarely available in most
data sets. and researchers use various, not wholly satisfactory, indicators
(such as wage rates and industry or occupation alone). One estimate
suggests that roughly a quarter of the U.S. labor force hold jobs in the
secondary segment and slightly more than half hold jobs in the primary
segment~ivided into an independent primary segment (25 percent)
and a subordinate primary segment (30 percent). About 20 percent of
the labor force (e.g., self-employed persons, high-level managers) fall
outside the schema (Edwards, 1979:166~.
The empirical literature further suggests that various labor market
processes operate differently in the two segments, although Cain (1976)
has questioned the validity of findings of differences between segments
when the Endings relate to vanables that are correlated with, or the
same as, those used to define the segments.3 Several empirical studies
suggest that training, mobility, schooling, and seniority have different
payoffs in terms of wages in the different segments (Buchele, 1976;
Rumberger and Carnoy, 1980~. Wages in the secondary segment typi
3 1iliS cntiasm is Woo applicable to Buchelc's study (1976), which uses job content
vanables as the basis for deeding the segments, then proceeds to mves~gate the wage-
sc~g process.
OCR for page 51
Institutional Features of Labor Markets
Sl
cally average 70 to 75 percent of those in the primary segment. Job
tenure and employment stability are also less certain in secondary jobs.
Earnings equations like those based on human capital models, suggest
that the returns to years of schooling and experience are Virtually zero
in the seconder, segment (Edwards, 1979:16~69~. In the primary seg-
ment, by contrast, returns to schooling and experience are generally
substantial. at least for men. Osterman found that the earnings of men
In the independent primary segment increased 34 percent for each 10
years' additional experience; the earnings of those in the subordinate
primary segment increased IS percent; and the earnings of those in the
secondary segment increased only 4 percent (Edwards, 1979:175~. Os-
tennan (1978) also found that each year of schooling increased a man's
earnings by 10 percent in the independent primary segment, 6 percent
In the subordinate primary segment, and only 1.5 percent in the sec-
ondary segment (Edwards, 1979:175~. Similar differences have also been
found by Buchele (1976) and Rllmberger and Carnoy (1980~.
Such findings are consistent with the hypothesis that different labor
market segments operate in different ways, but they are at odds tenth
the general tenor of the neoclassical human capital mode! of the labor
market. Neoclassical theorists recognize '`transitional" phenomena that
result in flee labor market's being out of equilibrium. For example,
computer personnel are "overpaid" until enough workers can train for
the position: workers in new oil fields are "overpaid" until more workers
amble. Moreover. jobs in rural areas may remain at slightly lower wage
kvels than urban jobs because the difference in wage levels is not great
enough to overcome the costs of search and relocation. `'Equal~zing"~
or "compensating ' wage differentials are also recognized by neoclassical
theorists: risk`. dirty, or unpleasant jobs are thought to earn premiums
(relative to others requ~nng similar skills) in order to induce workers
to take them. Jobs that require long and costly training also command
such premiums (Friedman, 1971; Robert Smith, 1979~. The neoclassical
Mew recognizes the existence of noncompeting groups (men and women,
for example) in the labor market, but their existence is seen as an
anomaly, expected to disappear over time due to the forces of oom-
petition. The difference between the neoclassical and institutional Mews
thus turns on judgments regarding the importance and systematic nature
of market imperfections, not their presence or absence. In the ~nstitu-
tional view, such imperfections are seen to be logical outcomes of prod-
uct and labor market processes, so large and so pervasive that they
dominate the wage-setting process.
In the institutional analysis, a worker's marginal productivity or worth
to the employer is determined not only by the human capital be or she
bungs to the market but also by the way his or her job Is structured.
OCR for page 52
52
WOMEN, WORK, AND WAGES
The institutional approach considers as influences in the determination
of wages such factors as the structure of the product market of em-
ployers, the arrangement of jobs by emolovers. union ~^i,q1
intensity, and technological factors, In addition to human capital attn-
butes. What a job is 'iworth" to an employer depends largely on how
the employer chooses to structure it (given the constraints of industry,
profit margins, and so forth) as well as on the customs and traditions
of the particular workplace. Workers do not operate as individuals in
the labor market, but rather as members of groups defined by their
relationship to labor market structures, and labor market structures
effectively limit the choices open to them: "Over significantly long pe-
nods, job structures exist, and workers must live with them as best they
can" (Harrison and Sum, 1979:694~.
~- - ~- ~- - - 7 ~ ~4 8 ~_~ V 1 ~ ~ 1
lOB SEGREGATION
Job segregation by sex' race, and ethnicity is common in today's labor
market. Women and men and minorities and nonminorities often work
in different jobs. As Blau (1977) has demonstrated for several narrowly
defined clerical occupations, even for occupations that are integrated
by sex, men and women work in different liens, with men more likely
to be found in high-wage firms and industries. Hence, even when oc-
cupations are integrated by sex, the jobs men and women actually hold
are segregated by sex.4 Because custom and tradition have in the past
assigned subordinate social roles to minorities and women and because
labor markets tend to incorporate, mirror, and perpetuate such roles,
institutional theorists would expect minorities and women to hold low-
paying jobs with limited opportunities. As we concluded in Chapter 2,
the evidence on the differences in earnings between men and women
suggests both that they cannot be satisfactorily accounted for on the
basis of worker characteristics thought to affect productivity and that
job segregation contributes to the lower earnings of women. Why women
are concentrated in low-paying jobs is a crucial question still left un-
resolved. Three different explanations have been offered: women
choose, for reasons other than pay, jobs that turn out to pay poorly;
women are excluded from high-paying jobs; and the jobs that women
hold tend to be underpaid because they are held by women. If the latter
two explanations have empirical support, we must conclude that em-
ployment discrimination and wage discrimination exist.
' Beck at al. (197S, 1980a, 1980b) have reported empirical findings OR women's work
and eam~gs ~ se~ncated labor markets (fee Heuser, 1980, for a cotiguc); for earlier
worl: on WOmCD in }o~v-wagc u~dustnes, see Stevemon (1973, 1974, lg7S); for a historical
trcatmcat, see HanmanD (1976~.
OCR for page 53
Institutional Features of Labor Markets
CHOICE
53
It is sometimes asserted that women choose to work at certain types
of jobs despite the fact that such jobs have relatively low pay rates. A
vanety of reasons has been offered. First. women may be socialized to
believe that some types of jobs are appropriate and that others are
inappropriate for women; socialization may be so effective for some
women that it net er even occurs to them to consider other types of jobs.
Second, women may have pursued courses of study they thought par-
ticularly appropriate to women and in consequence may not have the
education or training that would suit them for other available jobs.
bird, women may lack information about other available jobs, their
pay rates, working conditions. and access to them. Fourth, women may
be aware of alternatives. but because of actual or expected family ob-
ligations may structure their labor force participation in particular ways.
For example' tines ma' be unwilling to invest a great deal of time, effort.
Or money in preparing for jobs because they do not expect to remain
in the labor force after marriage or after childbeanng. They may be
willing to accept lou-pasing jobs. or jobs with limited opportunities for
advancement. and hold them until they marry and begin to raise child-
ren. Or. in expectation of returning to work after their children are in
school or grow n they may choose jobs that are easy to leave and reenter,
jobs that do not require the continuous accumulation of skills and con-
sequentls do not lead to significant increases in earnings with experience
(Mincer and Polachek. 19-4. 1978; Polachek, 1976, 1979~. To accom-
modate the dual demands of work and family responsibilities, women
may choose jobs with limited demands restricted hours. no overtime
work, no travel requirements. etc. Or they may defer to the demands
of their husbands career advancement, moving with their husbands
from place to place, etc. (Oppenheimer, 1970~. Some of these family-
related factors may influence women's willingness to pursue advance-
ment in their jobs. Fifth. women may be aware of alternative types of
jobs but believe them to be unavailable or unpleasant because of dis-
cnm~nation; their labor market preparation and behavior may be af-
fected in man, Bass by this perception: the course of study they take;
the time, money and effort invested in training; their willingness to
accept promotion. etc.
It is difficult to assess the relative importance of the choices women
make in the labor market and of the factors affecting their choices.5
5 An extensive literature exists on some of the relevant topics, especially socialization.
For usefb1 reviews see Maccoby and 3aciclin (1974), Mcdnicic at al. (1975), Scenzoni
(1975), Duncan and Duncan (1978~' sod Laws (1979~; for bibliographies of these materials
see Asiin ct al. (1971~. Bickner (1974), and Astin et al. (l975~.
OCR for page 54
54
WOMEN WORK, AND WAGES
Many of these "choices" are adaptations to constraints of various kinds.
Ethers are the result of complex somal-psycholog~cal processes. Women's
choices observed so far may change (and may already be undergoing
change) as women's participation in the labor market changes. More
and more women are entering the labor market and remaining in it even
when their children are very young.6 Their career expectations, their
willingness to invest in training. and so on man be aff``rt~1 he tale
changes.
When efforts have been made to measure these factors, in an attempt
to explain the difference in earnings between women and men, the
results have been mixed. Using data on women ages 30 44 from the
National Longitudinal Study (NI-S), Mincer and Polachek (1974) found
that wages varied positively with work experience and negatively with
work interruption, and they estimated that half the earnings gap between
men and women could be accounted for by their different patterns of
labor force participation. They reasoned that work interruptions would
be important because women's skills would depreciate while they were
out of the labor market.
Polachek (1976, 1979) has suggested that women choose jobs the
wages of which will be least affected by interruptions (because such jobs
have low returns on experienced. Using data for women of all ages from
the Pane] Study of Income Dynamics, however, Corcoran (1979) found
that continuity of work experience did not seem to have a large effect
on earnings differentials between men and women, and, in particular,
that labor force withdrawals did not usually lower women's wager
their skills did not in general atrophy or depreciate while they were out
of the labor market. England (1982), using the NES data for women
ages 304, attempted to test the Polachek thesis by estimating the
amount of skill depreciation that women with intermittent labor force
participation experience in different occupations. She found no corre-
lation between rates of skill depreciation and the percent female in
occupations, indicating that women probably do not choose their oc-
cupations to minimize income loss, as Polachek suggests.
a_ ~_~- v,~ Lea:
~ Lb recent years, the largest proportional inacasc m labor force participation has been
among manned women: in 1947, married women's partic potion rate was 20 percent; by
1979, Marty 48 percent of all mamcd women were working outside the home (Ralph E.
Smith, 1979 4~. Morco~cr, much of this mcrcax Evolves the mercasing participation of
women traditionally least lilccly to wori~mamcd women living with their husbands and
ninth young children. In 19SO, 11.9 percent of Ted women with husbands and with
children under SLY years old were employed; by 19~, about 4S percent were employed
ITS. Dcpartmcot of Labor, Bureau of Labor Statistics, 1977:Tables 18 and 22; Bureau
of Labor Statistics DEWS "kasc 8~767, Dcc. 9, 1980~.
OCR for page 58
58
WOMEN. WORK, AND WAGES
TABLE 14 Wage Rates at a Westinghouse Plant. 1943
Evalua
Proba- Qualify- tion
tionary ing Standard Point
Labor Grade Rate Rate Rate Range
Female
1 S0.615 S0.645 S0.675 0 49
2 0.645 0.675 0.705 50 62
3 0.675 0.705 0.735 6~78
4 0.70S 0.735 0.765 7~98
S 0.735 0.765 0.795 9~125
Male
Common labor S0.785 ~37
1 (6) SO.?85 S0.785 0.815 38~9
2(7) 0.785 0.815 0.845 5~62
3(8) 0.815 0.845 0.875 6~78
4 (9) 0.845 0.875 0.905 7~98
S (10) 0.875 0.905 0.955 99 123
6 (11) 0.905 O.9SS 1.055 12~154
7(12) O.9SS 1.055 I.OSS 15~199
8 (13) 1.055 1.055 l.lSS 199 239
9 (14) 1.055 1.155 1.25S 24~299
10 (15) I.1S5 1.255 1.405 300
SOURCE: Adapted from Newman. 1976:268.
worth according to the company's own criteria. Only the male common
labor classification paid less than the highest paid women's jobs. This
rank ordering of labor grades and pay differentials remained essentially
unchanged until the separate series for male and female jobs were abol-
ished in 1965. When these separate series were merged into a single
series in 1965, however, the male grades 1 through 10 were simply
relabeled 6 through 15, so that the sex differential in pay was preserved.
The labor grades were not combined in such :' I: ac In ·-fl^~t t1
original evaluation of these jobs.
A similar situation existed at several General Electric Company
plants. As a result of several lawsuits brought by the International Union
of Electrical, Radio and Machine Workers (lUE), the pay rates of some
jobs held mainly by women have been raised. A selection of the job
titles compared in one case is shown in Table IS; similar jobs were
matched and the issue in contention was their relative worth. As the
table shows, the jobs were almost entirely segregated by sex, and the
highest paid women's job was paid less than the lowest paid men's job.
As a result of the settlement, these women Is jobs were generally raised
several grade levels, although only four of them were judged to be of
_ _ ~ ~ ~ V · -~ A
OCR for page 59
Insatutional Features of Labor Markets
59
fully equal worth to similar men's jobs. After the settlement, the union
negotiated wage increases for many more jobs held by women, which
were not as readily comparable to those held by men but were com-
parable to some of the moments jobs that had been raised.8
A different kind of evidence comes from a situation in which job
evaluation procedures were used explicitly for the purpose of assessing
the existence and extent of pas discrimination based on sex. In 1974 a
study was conducted of state government jobs in the State of Washington
(Willis, 1974, 1976~. A claim had been made that the existing practice
of pegging the pay rates of state employees to prevailing rates in the
pirate sector was discriminatory because the private sector traditionally
underpaid jobs held mainly by women. To assess this claim, the study
compared the pa, rates of jobs held mainly by women with the pay rates
of jobs of "comparable worth" held mainly by men. A total of 121
positions, in which at least 70 percent of incumbents were of the same
sex, were chosen for evaluation. The job evaluation plan used, which
was developed by Norman Willis and Associates of Seattle, was sub-
stantialIy similar to the Hay Associates plan (see Treiman, 1979:21-23~.
Of the 121 positions. 59 were filled at least 70 percent by men and 62
were filled at least 70 percent by women. Figure 2 shows that in the
State of Washington. jobs held mainly by women were paid substantially
less than jobs of comparable value, as defined by the job evaluation
fo~.ula, held mainly by men: the pay rates for the jobs held mainly by
women averaged about 80 percent of the pay rates for jobs with the
same number of job evaluation points held mainly by men.9
'Newman (1976:271) ~rites:
Me psychology here is interesting. .6Jane, ' a grade 11, did not compare her job
with ..John s ' grade 14 job; instead she compared herself with "Sandra," a grade
8 who vitas a plaintiff in the lawsuit. as a result of which "Sandra" also became a
grade 11. ..Jane" was sure she was worth three grades more than "Sandra"~but
did not know she was worth as much as "John," who bad been performing a
"man's" job.
9 For this study it is possible to apply Bimbaum's test (scc Chapter 2, note 17) to confirm
that the underpayment relative to their worth, of jobs held by women is not a statistical
artifact. For the 121 occupations included in figuec 2, let X equal job worth points, Y
equal the average monthly salary, and F equal 1 for the 62 jobs held mainly by women
and O for the 59 jobs held maim, by men (computed from Willis, 1974~. For these
occupations pYF X iS - . - and IF y is .832. Mat is, it is tic that (1) ~1 - g - extant
job worth. jobs held maim, by women are paid less than jobs held maidy by men (the
estimated diffcrcace~he metric coeff~cicat of Finis Sl75 per month, a bit more than 20
percent of the average salary for all jobs) and that (2) holding CoDs~t Francs, jobs held
mainly by women score higher in terms of job worth points man jobs held mainly by men.
Vising Birnbaum's criterion, discrimination is clearly present.
OCR for page 60
60
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OCR for page 61
Insatunonal Features of Labor Markets
O For jobs held mainly by non
i ~ 1.87{X} + 473
· For jobs held mainly by women
i" 1.40IXI+393
1,600
1,400
t,000
800
_
t' ~04
600
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200 300 400 500 sm
X=JobWorth Points
FIGURE 2 Scattcrplot of monthly salaries by job worth points, for S9
jobs held maims by men and 62 jobs held By by women in the
Washington State public service.
SOURCE: Computed from Willis, 1974.
61
One of the features of wage differentials between jobs held by men
and by women is that they become customary, accepted as the standard
rates for the jobs. Evolving wage structures~in a community come to
reflect these differentials, which are passed between internal and ex-
tcrnal labor markets. Area wage surveys reproduce these differentials.
If institutional factors such as those reviewed here do operate in the
labor market, then relying solely on area wage rates to establish pay
rates for a particuisr find will incorporate those differentials into that
firm's wage structure. Those differentials will be based on all factors,
including productivity and discrimination, that create differentials in
earnings between women and men in the wider market. By use of the
"going wage'' as a standard to set pay rates the wages of a (nondiscri-
moating firm will be biased by the discrimination of other firms In the
market. In the State of Washington case renewed above, the cause of
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62
WOMEN. WORK, AND WAGES
the "underpayment" of jobs held mainly by women was not a result of
an overtly discriminatory act on the part of the employer but simple
conformity to the prevailing pay rate of the private sector.
DISCRIMINATION IN LABOR MARKETS
Although the institutional approach to understanding labor markets
is not itself a theory of discnmination, it does view labor markets as
inherently rigid and balkanized. The approach thus provides a basis for
viewing discnmination as an integral part of both labor market processes
and their outcomes. The labor market, incorporating a range of political,
social, and economic forces, is seen to create an institutional context in
which groups with different interests attempt to stabilize or enhance
their positions. In this context discnmination can be understood to be
one of the important mechanisms that have contributed historically to
the creation of segmented labor markets. In addition, the ways work
is organized and the associated patterns of productivity and wages in
both the secondary and the primary segment~incorporate and repro-
duce patterns of unequal access and disparate rewards for different
groups of workers. Rigidities such as custom, tradition, barriers to mo-
bility, and administrative rules tend to prevent change and to reinforce
established patterns. Thus, hierarchy and inequality, including discrim-
ination, are seen to be part of labor markets.
In the institutional view of labor markets, discrimination would be
expected to take the fonn of segregation into different jobs rather than
of lower pay for identical jobs (BIau and Jusenius, 1976; Blau. 1977;
Stevenson, 1978~. This is so because internal labor markets in large firms
typically function with the aid of work rules that are bureaucratically
enforced and uniformly applied and administered; because these rules
specify that everyone in the same job category should be treated simi-
larly; and because sex, race, and ethnic differences have recently come
to be perceived as unfair (and indeed illegal, with the passage of the
Equal Pay Act and the Civil Rights Act).
r D
We must stress, however, that in an institutional framework neither
the fact nor the form of discrimination is inevitabl~in fact, important
changes have occurred within the past two decades. Minorities and
women in earlier times were subjected to discrimination of venous
forms: lower pay for doing work identical to that performed by non-
m~nonty men; de lure and customary exclusion from some jobs; inad-
cquate cUucation because of segregated (and unequal) schooling; and
~ facto exclusion from some jobs because of residential segregation.
While none of these forms of discrimination Is absent from contemporary
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Insatutional Features of Labor Markets
63
American society, their importance has been reduced by legal, social,
and political intervention.
The institutional view of labor markets helps to explain how discnm-
mation can occur and persist through job segregation that confines
women and minorities to low-wage jobs. There are, of course, other
News of how discrimination occurs within or through labor markets,
although no economic theory attempts to explain the origins of discum-
u~ation. Some theorists rely on the concept of "tastes," people's pref-
crence for working with or hiring their own kind (Becker, 1971~; others
suggest economic advantage is the motive, either of white male workers
(Bergmann, 1974; Madden, 1975) or of employers (Reich, 1978~; still
others suggest that discrimination occurs because it minimizes the cost
to employers of doing business (Phelps, 1972~. Most agree on the pn-
macy of job segregation as the mechanism of discrimination. Moreover,
since the persistence of discrimination over time cannot be explained
by conventional models of the labor market (which posit perfect mo-
bility, information, and access), most theories of discrimination incor-
porate departures from these assumptions in an attempt to better rep-
resent the actual behavior of labor markets.
In one of the earliest models of discrimination, Gary Becker (1957,
1971), incorporating a central element of neoclassical theory, relied on
"tastes" of employ ers, employees, or customers as the motivating force
behind discriminatory behavior. He suggests that people's tastes for
discrimination can be satisfied or bought off at certain paces. For ex-
ample, if whites do not want to work with blacks, they can be encouraged
to do so only by being offered wages that are high enough to offset their
distaste for working with blacks. If employers do not want to hire blacks,
however, the employers can be encouraged to do so only by hiring blacks
at wage rates low enough to compensate for their distaste. If consumers
do not want to buy products made or served by blacks, they mI] buy
them only if the prices are low enough to offset their distaste. Becker's
hypothesis is that in such cases resources are being allocated inefficiently,
and competitive market forces would be expected to eliminate the wage
and price differentials over time.
In another influential mode' of discrimination, Barbara Bergmann
(1971, 1974) applied the concept of overcrowding to race and sex dis-
crimination. Her mode} is based on the assumption that the distaste for
hiring minorities and women is so strong that employers exclude them
from many jobs. This has the effect of increasing the supply of labor
available to fill the jobs that are open to women and m~nonties, which
In turn Knees the market wage for these jobs down relative to what it
would be if there were no restrictions on occupational opportunities.
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64
WOMEN. WORK, AND WAGES
Similarly, the wages of favored groups are higher than they would be
otherwise because of their relative undersupply. Again, in this model
resources are being inefficiently allocated; the free movement of workers
would result in more total product. In postulating a bifurcated labor
market Bergmann departs somewhat from the neoclassical concepts of
perfect competition, mobility, and information' in that in her mode]
men and women and blacks and whites are not able to compete with
each other for jobs. Yet, just as in Becker's model, discnmination is
expected to disappear over time because any employer who does not
exclude minorities or women would have a competitive advantage over
those who incur higher production costs by excluding them.
Phelps (1972) and others have developed the concept of statistical
discrimination. This model, like Thurow's queuing model (1969, 1975)
and early models of the dual labor market (Doeringer and Piore, 1971),
postulates that to minimize training and turnover costs employers at-
tempt to find the most productive workers for jobs requiring stability
and long or costly training. If employers believe that women and mi-
norities are less productive or have higher turnover rates, they will not
hire them. They do not necessarily have tastes for discrimination; they
are simply minimizing the costs of screening prospective employees by
summarily eliminating those they think are likely to be unproductive or
costly workers generalizing about individuals on the basis of their per-
ception of group characteristics. Whether or not these workers are less
productive, they are barred from the opportunity to take `'good" jobs.
The mode! recognizes that employers do not have perfect information
and that obtaining information incurs costs. Lee workers thus excluded
take other jobs, for which turnover costs are perceived by employers
to be less important. Or, if employers hire such workers for good jobs,
it is at wage rates low enough to compensate employers for their ex-
pected higher costs. Of course, when employers' beliefs are so erroneous
that the costs of screening would be more than compensated by the
quality of the workers erroneously excluded, discrimination would be
expected to abate or disappear over time, because employers who do
not hold such erroneous beliefs would have a competitive advantage.
As Cain (1976) has noted, the human capital approach, the approach
most commonly used in developing models to measure the extent of
discrimination In the labor market, does not provide information about
the possible mechanisms of discrimination. Such models attempt only
to measure the results. As we note in Chapter 2, these studies indicate
that women earn much lower returns OR their human capital than do
men, and that the earnings differential] cannot be explained by sex dif-
ferences In characteristics of workers thought to affect their productivity.
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Insanmonal Features of Labor Markets
65
Despite the inability to measure precisely the venous sources of wage
differentials and the plethora of postulated mechanisms of discumina-
tion, researchers agree that job segregation is an important source of
the difference in wages between men and women. In our view, although
the concentration of women in lower-pay~ng jobs exists at least in part
because of women's choices, it also results from the exclusionary prac-
tices of employers and from the systematic underpayment of jobs held
mainly by women. Wages are higher in some jobs and lower in others
than they would be in the absence of job segregation. In particular, the
wage rates of jobs traditionally held by women are depressed relative
to what they would be if women had equal opportunity in the labor
market.
CONCLUSI ON
The main conclusion of our analysis of labor markets is that observed
market wages incorporate the effects of many institutional factors, in-
cluding discrimination. This conclusion has three corolIanes. First, mar-
ket wages cannot be used as the sole standard for judging the relative
worth of jobs. Second, in order to end discrimination, policy interven-
tions to alter market outcomes may be required. Third, because of the
complexity of market processes, actions intended to have one result may
well turn out to have other, even perverse, consequences.
The first corollary requires no additional comment. With regard to
the second, we simply note that over the years a variety of strategies
designed to alter market outcomes have been proposed and imple-
mented. These strategies include programs to encourage additional
schooling and job training; programs to encourage the employment of
the disadvantaged; improvements in fob information and job search
techniques; equal opportunity legislation designed to eliminate the dis-
cominatory practices of employers, labor unions, and employment agen-
aes; and programs to encourage women and minorities to train for and
enter untraditional jobs. In addition, the coverage of the federally man-
dated minimum wage has been expanded over the years to protect
workers in many of the lowest-paid jobs, such as those In domestic
service, agriculture, laundries, restaurants and hotels, and fast food
chain~jobs in which women and minorities are overreprcsented. His-
toncally, organization by both employees and employers and regulation
by government agencies have been the methods most often used to
attempt to alter market outcomes.
With respect to the third corollary, any policy of intenren~don requires
that full consideration be given to the complexity of labor markets and
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WOMEN, WORK, AND WAGES
to all the forces that influence market outcomes. Because so many
factors are influential, policies to alter outcomes that focus only on
selected factors may not have the intended effects. Equal employment
opportunity programs, for example, focus on the demand side of the
market by attempting to influence employer hiring, promotion, and
compensation policies. But if only some employers are affected by the
regulations, those with government contracts, for example, they may
hire minorities or women away from employers without government
contracts, and the net effect may be that the employment of minorities
or women has not increased as much as was expected (for an example
in construction see Flanagan, 1976~. Similarly, if government efforts
succeed either in raising the wages paid to minorities and women above
the levels employers think are warranted or in placing minorities and
women in jobs that employers think are ~nappropnate for them, em-
ployers may substitute other factors of production. Other changes in the
economic environment faced by the employer may also occur simulta-
neously with affirmative action efforts and may have countervailing
effects. For example, one study claims that since the well-public~zed
consent decree involving American Telephone and Telegraph, the rate
at which technological change has displaced women workers appears to
have increased more rapidly than previously predicted by the company
(Hacker, 1978~.
Strategies that focus on the supply side of the market are similarly
limited if they are not implemented in connection with complementary
strategies. Women and minority workers can be trained in new fields,
for example, but if employers refuse to hire them, market outcomes will
not be altered. Strategies that focus on improving the operation of labor
market~by increasing the information available about jobs, for ex-
ample assume that both demand and supply are adequate so that once
workers and employers find out about each other they can come to
mutually beneficial teens. It must also be recognized that in our econ-
omy not everyone can have a "goon,' high-paying job. Our economy
generates low-wage jobs as well as high-wage jobs; attempts to prevent
their being filled in this country may simply result in the exportation of
low-wage jobs. The complexity of the labor market does not mean, of
course, that market outcomes cannot be altered. It does mean that no
single type of policy is likely to be effective by itself and that any strategy
to alter outcomes in one part of the labor market must take into account
the likely consequences in other parts as well as the structure of the
economy itself.
The com~uttec is convinced by the evidence, taken together, that
women arc systematically underpaid. Policies designed to promote equal
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Institutional Features of Labor Markets
67
access to all employment opportunities will affect the underpayment of
women workers only slowly. Equal access to employment opportunities
may be expected to be more effective for new entrants than for estab-
Ushed workers and more effective for those who have invested less In
skills than for those who have invested more. Since many women cur-
rently in the labor force have invested years of training time ~ their
particular skills (e.g., nursing, teaching, librananship, and secretarial
work), access to other jobs (e.g., physicianship, plumbing, engineering,
or sales) may not be preferred. For these reasons the committee believes
that the strategy of "comparable worth," that is, equal pay for jobs of
equal worth, meets consideration as an alternative policy of intervention
in the pay-setting process wherever women are systematically underpaid.
The viability of a strategy of paying jobs in accordance ninth their
'~worth" requires, first, that an appropriate mechanism, other than cur-
rent market wage rates, can be found to measure the relative worth of
jobs to an employer and. second, that wages commensurate with worth
can be set and paid by the employer. In cases In which wage costs,
productivity, profitability, conditions in product markets, or economic
growth permits the new costs to be absorbed, this strategy provides a
direct method of redress for wage discrimination due to occupational
segregation. Since much of the wage differential arises because women
work in low-~'age firms and men work in high-wage firms, however,
even a comparable worth approach, applied to single firms, would not
entirely eliminate the differential. For this reason and because, given
the complexity of labor markets' a comparable worth strategy may have
unanticipated and unintended effects, it cannot be viewed as a panacea.
Raising the wages of jobs held by women through a comparable worth
strategy might have various effects. On one hand, employers might alter
the nature of the jobs women hold in order to encourage longer job
tenures and lower turnover rates, thereby reducing costs and making
their investments in women pay off. Higher wages might also encourage
employers to offer women more on-the-job training and skill enhance-
ment programs. On the other hand, a comparable worth strategy might
reduce employment either because employers shift to alternative, less
labor-intensive methods of production or (if the new labor costs were
paid and passed on) because consumers might switch to other, less
expensive goods or services.'0 We want to point out, however, that the
to Gregory and Duncan (1981) investigated the relevance of labor market segmentation
theory to Australia s recent efforts to increase the wages of occupations filled mainly by
women. They suggest that the wage increases did not negatively affect the numbc' of
women employed. in part because many employers of women were sufficicDdy insulated
Tom competitive market forces to absorb the higher costs.
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68
WOMEN. WORK, AND WAGES
strategy of comparable worth is conceptually similar to earlier policies
of directly altering wages by raising them above previous market rates,
such as the minimum wage and overtime premium provisions of the Fair
Labor Standards Act and the Equal Pay Act of 1963. Employers were
certainly able to hire the workers they needed at rates lower than those
prescribed by the new provisions; they were, however, required by law
to pay more. Economists are still debating the merit of these provisions
and attempting to identify and measure their effects on the amount and
terms of employment (Lev~tan and Belous, 1979~.
While further study of the possible effects of a comparable worth
strategy is certainly required, the committee believes that policies de-
~sed to alter pay structures so that jobs are rewarded in a nondiscri-
minatory manner that is, commensurate with their demands and re-
quirements rather than in ways based on the sex, race, or ethnicity of
those who hold the~are clearly desirable. It is not, however, an easy
task to ascertain for any particular job whether its pay rate includes
discriminatory elements. Chapter 4 discusses the potential usefulness of
venous proposed procedures for identifying and eliminating discrimi-
natory elements of pay differences among jobs within an individual firm.
Representative terms from entire chapter:
labor market
