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Uber Drivers Can Help to Explain the Pay Gap

Ryan Bourne

The gender pay gap is a tricky concept for proponents of
“evidence-based policy”. The Government has introduced a
legal requirement for businesses with more than 250 employees to
publish average gender pay statistics. The rationale is for
“transparency”, apparently, though it does not take
Nostradamus to forecast how these will be used in public debate.
The demands for action will follow.

Yet what is rarely mentioned is that there is a large amount of
empirical literature in economics that explains why apparent
headline pay gaps exist. Controlling for occupation types, time in
the labour force, education levels, and market rewards for
unpleasant or unpopular work and more, the remaining
“gap” between genders almost entirely disappears. The
evidence for discrimination by sex is weak to non-existent. Judging
whether the somewhat different demand for “equal pay for equal
work” is achieved is likewise heavily dependent on how you
define “equal work”, given the nature of different
jobs.

Many would argue, with some reason, that societal expectations
of women shape occupation choice, tasks assigned, the nature of pay
negotiations, and decisions on how to care for children. If all
male advantages in these areas were eliminated, so is implied, the
sexes would be equally represented across jobs. Pay gaps for the
same work would likewise be eliminated.

But is a 50-50 occupation split and pay gap elimination likely?
There were already reasons to be severely doubtful. In Scandinavian
countries with extensive pro-family policies, preferences for child
caring and careers still seem to result in higher pay for men.

In the UK, male models are unlikely, on average, ever to be paid
as much as female. An innovative new study sheds further light,
showing pay gaps still exist even in markets where contractors do
the same job and workers set their own hours.

A new paper on ride-sharing app Uber shows male drivers, on
average, earn 7pc more per hour than their female counterparts in
the USA. This is remarkable. Drivers have full flexibility to work
when they like, pay rates are fixed and transparent, there are no
earnings negotiations and customers do not appear to care about the
gender of their driver. Almost all the explanations about the
patriarchal nature of business environments and how non-women
friendly the working hours are therefore fall away. And yet there
is still a pay gap.

Why? The study’s authors Cody Cook, Rebecca Diamond, Jonathan
Hall, John List and Paul Oyer drilled down into what was happening
in Chicago, and found three factors fully explain the
phenomenon.

First, men were likely to have more experience using the app,
and so make more efficient decisions to boost earnings. Though men
and women experienced very similar learning curves for performance,
men tended to have delivered more rides, both because they stayed
using the app for longer and completed more rides per hour. This
“experience” effect explains over a third of the
average.

Second, men tended to drive faster than women, accounting for
almost 50pc of the gap. Faster driving increases the number of
rides completed per hour. This is not just an experience effect
either. There is no evidence that women, on average, drove faster
after completing more journeys. They seem to just have a preference
for driving more slowly no matter how many trips they have
completed.

Third, and finally, men were more likely to drive in the
lucrative locations. As a result, men tended to have shorter trips
to the rider, longer overall trips, and higher returns through
incentives such as surge pricing. This explains about a quarter of
the gap.

Might this be due to women feeling constrained about when they
can drive, due to family responsibilities? No. The authors show
that the times workers drive actually tend to boost women’s pay
relative to men. It simply seems to be that with free choice, women
Uber drivers in Chicago, on average, act differently from their
male counterparts.

Politicians would do well to bear this in mind next time they
wade in on some pay gap statistic for a certain industry. Yes,
policies, work environments, and social norms affect career paths
and earnings. But free choice in occupation and at work, including
attitudes to risk and personal priorities, can drive apparently
inequitable aggregated statistics too.

It is easy to perceive how this could affect other industries.
Might any pay gap in the financial sector in part be explained by
different attitudes to risk? Could it not be the case that
warehouse staff doing ostensibly the same job as those in stores
for retailers are paid more because their workplace locations are
less desirable?

There are lots of potential explanations for differential pay by
industry, let alone nationwide. Indeed, if campaigners and
politicians really want to “eliminate the gender pay
gap”, as they say, then their to-do list is quite extensive.
It includes: enforcing complete educational parity for men and
women, in the same disciplines, imposing the same preferences on
work-life balance, ensuring the same time is spent in exactly the
same careers, making sure men and women have the same risk-appetite
and preferences, the same levels of productivity, share domestic
tasks exactly equally, have the same attributes, the same career
paths and working lifetimes in the same occupations in the same
sized firms.

Yet, the Uber example shows that when men and women are
genuinely free to choose, they tend to choose differently. A more
just goal is surely to facilitate people pursuing their own
dreams.

Ryan Bourne
holds the R Evan Scharf Chair for the Public Understanding of
Economics at the Cato Institute