The Wage Gap: Existing Research

While women undoubtedly face disproportionate obstacles in the labor market, the issue is complicated and even harder to measure than most people realize.

Dec 03, 2017

wagegap Illustration by Mahgul Farooqui

82 cents on the dollar. The gender wage gap has been a topic of great interest and concern for decades and the gender disparity in earnings and work advancement has proven remarkably difficult to close. While women undoubtedly face disproportionate obstacles in the labor market, the issue is complicated and even harder to measure than most people realize. For the sake of memorability, labor inequality is often boiled down to a single eye-catching statistic: women are paid 82 cents for every dollar a man is paid for equal work.

In some situations, this shocking statement fits the bill — no one wants to read an economic report transcribed onto a protester's sign — but the situation is far more complicated than a single number. In fact, this claim can backfire. How can this disparity for equal work persist? Firms don’t offer separate salaries to their employees based on gender. That would obviously be illegal. If women could really be hired to do the same work for 20 percent cheaper, wouldn’t companies be clamoring to hire them to reduce costs? Simplification can be a good way to get attention, but it can also fail to convince suspicious listeners.

The answer, of course, is more complicated. It can be hard to define equal work. Women enter different industries and types of jobs than men and it is often unclear why. Women are underrepresented in highly competitive fields and top management positions, denying them the opportunity to do equal work in the first place. Some women face far greater inequality than others. There is a wide, varied and sometimes contradictory literature on gender inequality and the labor market and understanding it is key to closing the gender gap in the future. Here, we overview some basic themes.

What is equal work?

The statistic we hear most often in the media, that women make about 80 cents for every dollar a man earns, is what many researchers refer to as the unadjusted pay gap — if male office workers are more frequently promoted to manager — they are — or if technology firms employ male engineers and female HR workers — they do — the unadjusted pay gap will capture this inequality, depending on exact methodology.

Organizations like the World Economic Forum and the U.S. government also calculated adjusted pay gaps, which control for a host of factors like the exact position held, hours worked per week, qualifications, tenure and so on. After adjustments, the gap has been narrowed to as little as 5 cents on the dollar in the U.S.

Does this mean the issue isn’t as bad as it sounds? Probably not. While the measure succeeds at comparing the wages of men and women with more similar positions, the factors that systematically land women in lower paying jobs are part of the problem. Girls grow less likely to indicate interest in studying STEM fields as they age, with significant evidence this bias is driven by socialization and externally enforced norms. Mirroring this educational effect is the systematic selection of women into comparatively lower paying industries, such as retail, hospitality, education and healthcare and underrepresentation of women in higher pay fields like technology, engineering and business.

Women also face discrimination and disproportionate challenges securing mentorship and promotion in a wide variety of industries. Further, women are more likely to be tasked with the majority of in-home labor and child-rearing activities, causing them to be more heavily penalized in fields that demand flexible hours and uninterrupted careers. The adjusted pay gap nets out all these issues, which arguably are part of the problem.

The total pay gap figure also hides the fact that certain women are far more disadvantaged than others. The effects of discrimination and inequality are compounded for women of color. In the U.S. the pay gap is estimated at 64 cents per dollar for black women and 54 cents per dollar for Latina women, relative to the earnings of white males. Countries such as the United Kingdom and Canada find similar effects of varying size.

Additionally, a large body of research has identified a motherhood penalty such that women with children face significantly larger wage gaps than childless women. Wages for fathers, on the other hand, are consistently higher than for childless men, highlighting the exacerbation of labor market differences by unequal household and family obligations. Conversely, childless white women in the U.S. context may be better off than some people realized based on aggregate summary statistics; a 2015 study concluded the pay gap for single white women may have improved to as little as 4 cents on the dollar.

What about the developing world?

The majority of the research we highlight here comes from the U.S. and a handful of other developed countries such as Canada and the United Kingdom. While there is an abundance of literature on the gender wage gap in developed countries and transition economies with ample data on employment and wage, equivalent studies in underdeveloped countries — in Sub-Saharan Africa, for example — are not as rich. One reason could be that there are not many employment opportunities outside the agriculture sector and therefore people commonly resort to self-employment, which makes it difficult to obtain consistent and reliable data on labor income, let alone formal wage. As a result, the literature on the gender income gap in developing countries tends to focus on the discrimination faced by self-employed women.

Research in Sub-Saharan Africa suggests that the gender gap persists mostly at the top end of the earnings distribution, where a glass ceiling of unobservable discrimination keeps women from earning as much as men. Some research suggests that, much like in the developed world, sector selection is an important factor, as traditionally male-dominated sectors are more profitable than female-dominated sectors. A second study finds that female-owned enterprises in male-dominated sectors in Ethiopia perform better on average than female-owned enterprises in female-dominated sectors. This finding has the promising implication that the earnings gap between male and female entrepreneurs could be compressed if women can break through the barriers and enter profitable, male-dominated sectors.

How does the gender gap influence migration?

Labor migration — usually from rural areas to the cities or from developing countries to developed countries — has important implications on individuals’ economic decisions, as well as on the growth of the economy as a whole, especially in transition economies. Individuals make decisions to migrate based on the expected gain from migration, whether it be higher wages or employment opportunities, and firms benefit from a larger labor pool. In the context of developing countries, labor migration represents a movement of labor out of agriculture into the manufacturing and service sectors. Because migrants tend to follow economic growth, it is important to consider labor migration in the study of the gender wage gap.

Academic research finds that female migrants’ average income is significantly different from male migrants’. Filipino overseas workers earn significantly more than Filipina overseas workers, even when controlling for sociodemographic attributes, occupations and country of destination. The authors conclude that most of the earnings gap can be attributed to unexplained differences, which they consider evidence of significant market discrimination against women. Further study finds that male migrants earn more than female migrants in general and that discrimination contributes more to the gender gap than endowment — that is, differences in attributable characteristics like age and education. The wage gap attributed to discrimination is biggest at the bottom of the wage distribution. This finding suggests that victims of discrimination in labor market are often the most vulnerable people in society.

Bargaining

In addition to the education and industry effects mentioned earlier, some research finds that gender differences in hiring and salary negotiation are key factors in the establishment of a pay gap early in women’s careers. A 2009 study of MBA graduates — a group that frequently enters fields where salary negotiation is common — found women were already earning about 12 percent less than their male counterparts in their very first year of work. Other research has shown that women are, indeed, less likely to engage in salary negotiations. However, interventions aimed solely at encouraging more women to negotiate, and to do so as aggressively as men, have the potential to backfire. Experiments have shown managers react more harshly to females bargaining for higher salaries and are less likely to want to work with them as a result.

Why does the gap widen? How can we fix it?

Bargaining alone cannot, however, explain the wage gap. How do we know that? More bad news: The gender gap in median wages widens considerably as men and women progress in their careers. In the MBA study, male graduates were outearning the women by 60 percent a decade after graduation. Across all college graduates, the wage gap grows most dramatically through women’s late 20s and early 30s. The timing of this growth in the gap is revealing; it is the age at which many women begin to have children.

There is clear and consistent evidence that the demands of child-rearing are a primary contributor to the pattern of women falling behind in earnings, which has been so resistant to improvement despite decades of effort. Either by hindering women’s ability to work the hours required for advancement or removing them from the workforce entirely, a decade of disadvantage relative to male workers often leaves women at a deficit they never fully recover from. Cultural shift toward more equal sharing of household labor and the rise of the female breadwinner have the potential to soften the divergence, but these changes can be slow. Marked differences in the wage gap across industries, however, highlight a key moderator of inequality within the control of employers: flexibility.

Flexible workplaces are equal workplaces

Women consistently face the largest wage earning gaps in careers demanding the most inflexible schedules. A senior lawyer may be harshly penalized for being unable to attend an evening social event with a client, or an executive at a tech firm might be reprimanded for being unable to attend to an emergency deal or meeting on the weekend. Such unexpected, urgent demands are harder to meet for a female who is also the primary caregiver to one or more children. These competitive fields also tend to be those in which time out of the workforce is most damaging; for a lawyer, a year out of work is predictive of an 8 percent fall in salary upon their return. A woman taking multiple successive years of no or part-time work may find it hard to recover.

Workplaces with flexible schedules tend to have smaller wage gaps. For example, pharmacists and police officers both work shifts which can be planned far in advance. A particular professional can work their shift in the morning, afternoon or night, after which another worker replaces them. Time sensitive demands with career advancement on the line are likely. In the U.S. the majority or pharmacists are now women and the gender gap is estimated to be around 4 to 6 percent, the lowest in healthcare. A 2012 study found a sample of U.S. police officers who have reached gender wage parity. Where possible, adjusting workplaces and career structures for increased flexibility is a promising path toward equality. Researchers and policymakers continue to grapple with a variety of approaches; a clear understanding of the nature of the problem is the key to accelerating progress toward a solution.

Alex Matters & Mina Kim are contributing writers. Email them at [email protected]

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