Were the members of the World Cup champion women's soccer team underpaid?

The top line numbers are hard to dispute: the women's team is much more successful than the men's team and they are paid a lot less.  If pay equity decisions revolve around the principle of "equal pay for equal work," this is an open and shut case.

I spent some time recently trying to dig deeper into the question to see if there is a rational economic explanation.  Here is a quick look at the key determinants of pay for the men's and women's national soccer team:

1) Performance: Easy comparison here because the men did not even qualify for the 2018 World Cup and received no prize money at all.  The women's team received $4m for winning the cup.

2) Pay method: Women earn a base salary plus bonuses for wins in qualifying and World Cup matches.  Men get per-match bonuses for being on the active roster but they receive no base annual pay.  WP did a simulation to see what would happen under a range of win-loss scenarios.  Under a median 20 game scenario, if they both won the same number and type of games, women would receive 11 percent less than men.   Pay would be equal in only one scenario: if both teams played 20 matches and lost every match.

3) Revenue: In pure economic terms, product demand has a critical role in salary determination.  That is why the Rolling Stones will make more money than Sleater-Kinney (an all-women's band for those not in the know) for playing the same number of concerts in the same arenas, even if Sleater-Kinney has made better music over the last 20 years.   If the women's team generates more revenue than the men's team in friendly matches and tournaments outside the World Cup, that will make the pay discrimination claims much stronger.  Half of the revenue for the US Soccer Federation comes from sponsorships.  It is impossible to determine whether the women's or men's team has been the main driver of this revenue source.  As for dollars generated by paying customers at matches, the answer depends on timing.  If you include 2014 (when the men participated in the cup), WP reports the men come out $11m ahead.  If you start in a later year and include 2019, the women have generated more revenue.  Lawyers on both sides will have lots of fun making arguments here.

4) Collective bargaining: The pay scale for each team is set through separate collective bargaining agreements.  Some have argued that the women would be well served by taking a stronger stand in the next round of bargaining.   Others would argue that they should not have signed off on an agreement where lower pay is basically baked in.

Bottom line: the women should not have to depend on winning the World Cup to obtain pay equity.  The disparity in the pay scales that is built into the collective bargaining agreements is the strongest argument the women's team has in its favor.  General Motors and the UAW could not legally have one pay scale for women and another for men doing the same jobs.  My guess is that US Soccer will either settle out of court or come up with a new collective bargaining agreement before this case appears before a judge.

Employees: cost or asset?

Companies pay a range of wages for what are essentially the same jobs.  For instance Costco pays higher rates than Walmart, and other retailers fall in between (with no doubt some even higher than Costco and others even lower than Walmart).  This violates the infamous "law of one price" in economics, so there must be something else going on.

I recently came across the research of Sloan MIT professor Zeynep Ton in a NYT column by Joe Nocera that addresses this issue.  Professor Ton has focused on supply chain management practices in retail.  She found that companies do a great job of getting product from China (or wherever else it is made) to the store.  But once the product hits the loading dock, things often went haywire.  The product needs to be in stock in the right place of the store, and apparently that is easier said than done.

Ton compared execution success to HR practices and found that companies that paid bottom dollar and provided little to no training were the ones that were having the most difficulty; the results were published in Harvard Business Review.  Her conclusion: "investing in employees can boost customer experience and decrease costs."

With more retail companies raising wages, it will be very interesting to see how the remaining low wage employers in retail react.

Wages up at restaurants

Yet another front page WSJ story about wage increases, this time in the restaurant industry.  Job growth in restaurants and bars had outpaced other sectors since the economy started to recover in 2009.  But wage growth stayed very flat until the last six months of 2014, when restaurant pay went up by 3%, twice as fast as a year ago.

The article cites the experience of Pi Pizzeria in St. Louis which raised wages to reduce the quit rate and attract stronger job candidates.  Apparently many of those who had been cooks and waiters while waiting for the job market to improve are now finding better opportunities outside of food service.  Part of the story also seems to be good old-fashioned supply and demand.  More people are eating out (restaurant spending was up 11% last year way more than any other sector), thus putting pressure on restaurants to expand staffing.  In some states the minimum wage has increased, putting additional upward pressure on pay.

Wage increases on the horizon?

The national unemployment rate is almost back to where it was before the Great Recession.  Ordinarily that would lead us to expect a tighter labor market with rising wages and shortages in certain occupations.  But the economy has been anything but ordinary, especially the labor market.  The labor force participation rate has plummeted and many analysts think that once the labor market looks better, more people who are currently sitting on the sidelines will start looking for work.  If this happens, there likely will not be an uptick in wages for the average worker.

Many CFOs are expecting to have to give larger raises, according to Saturday's WSJ.  Wage rates have been flat since the recession started.  In a survey jointly performed by the Fuqua School of Business and CFO Magazine, CFOs expect wages to increase by 3% in the coming 12 months.  WSJ thinks that firms will have to accept smaller profit margins as a result, although raising prices or cutting non-labor costs are other options.

Why we have more manufacturing jobs

One of the few bright spots in today's economy has been the growth in manufacturing jobs, up 4.3% over the last two years.  Today's WSJ reports a key reason for the growth: wage growth in the U.S. has been flat since 2000 (adjusting for inflation), whereas wages have been rising rapidly in China and moderately in Mexico.  With unemployment running high, it seems like a safe bet for manufacturing wages to continue to be flat for at least the next year or two.

Many people continue to cling to the belief that the U.S. needs more manufacturing jobs to compete globally; that we need to make "stuff" to survive.  Some governments are actually subsidizing manufacturing companies in an effort to keep good jobs (see this NYT piece for examples in case you think the auto bailout was an isolated case).

This was not a totally crazy idea 50 years ago when manufacturing wages were relatively high compared to the rest of the economy.  But how good are those jobs in today's knowledge-based economy? Why would anyone would want to subsidize a sector where the mean hourly wage is $18.94 (private sector average is $19.47)?  Pay is significantly higher in mining, construction and most parts of the service sector.