Human Capital Theory’s Application to Pay Equity Analyses

In the context of EEO compliance pay analysis, one issue central to an investigation concerns what variables to include in a regression model used to discern whether meaningful disparities exist against protected groups. Such a model evaluates pay differences after accounting for all available factors that influence compensation; however, identifying such factors is a difficult task that has created disagreement among experts who debate the extent to which factors should be employee-centered (e.g. job experience) or organizationally-specific (e.g. job title). To weigh in on this debate, recently, in OFCCP audits and litigation, Plaintiff statistical experts have applied a Human Capital Theory approach when evaluating compensation disparities. According to their arguments, employer or institutional characteristics (e.g. job title) are often tainted by discrimination, and their removal can be justified via Human Capital Theory, which notes that productivity, and inevitably wages, are the result of employee choices and characteristics. Given this perspective, the current article

1) describes Human Capital Theory and some of its potential limitations,
2) identifies the extent to which it aligns with existing pay-related laws (e.g., Equal Pay Act), and
3) highlights its recent use.