On a Firm's Optimal Response to Pressure for Gender Pay Equity

54 Pages Posted: 22 Jun 2016 Last revised: 13 Jan 2019

See all articles by David Anderson

David Anderson

University of Maryland - Decision and Information Technologies Department

Margret Bjarnadottir

University of Maryland - Robert H. Smith School of Business

Cristian L. Dezso

University of Maryland - R.H. Smith School of Business

David Gaddis Ross

University of Florida

Date Written: August 6, 2018

Abstract

We present a theory of how a rational, profit-maximizing firm would respond to pressure for gender pay equity by strategically distributing raises to reduce the pay gap between its female and male employees at minimum cost. Using formal analysis and pay data from a real employer, we show that (a) employees in low-paying jobs and whose pay-related observables are similar to those of men at the firm are most likely to get raises; (b) counterintuitively, some men may get raises and giving raises to certain women would increase the pay gap; and (c) a firm can reduce the gender pay gap as measured by a much larger percentage than the overall increase in pay to women at the firm. We also identify the conditions under which a firm could “explain away” a gender pay gap using other pay-related observables like job category, as well as the conditions under which this strategy would backfire. Our paper helps explain some empirical puzzles, such as the tendency for some men to get raises after gender equity pay reviews, and yields a rich set of implications for empirical research and practice.

Keywords: equal pay legislation, gender pay gap, gender, compensation, formal models

Suggested Citation

Anderson, David and Bjarnadottir, Margret and Dezso, Cristian L. and Ross, David Gaddis, On a Firm's Optimal Response to Pressure for Gender Pay Equity (August 6, 2018). Robert H. Smith School Research Paper No. RHS 2798938. Available at SSRN: https://ssrn.com/abstract=2798938 or http://dx.doi.org/10.2139/ssrn.2798938

David Anderson

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4313 Van Munching Hall
College Park, MD 20815
United States

Margret Bjarnadottir

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Cristian L. Dezso

University of Maryland - R.H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742
United States
301-405-7832 (Phone)

HOME PAGE: http://www.rhsmith.umd.edu/lbpp/faculty/deszo.html

David Gaddis Ross (Contact Author)

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

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