Why Does Gender Pay Gap Still Persist?

How employers can address the issue

A recent Pew Research analysis revealed the pay differential between men and women is essentially unchanged over the last 20 years. Comparing the median hourly earnings of men and women in full- and part-time jobs, women earned an average of 82 percent of what men earned in 2022, compared to 80 percent in 2002.
 

The statistic is shocking considering the collective efforts to close gender pay gaps in the United States: raising awareness, formalizing salary ranges, instituting gender-blind hiring practices, publishing pay equity reports, and formalizing legislation in a number of states. Why are the effects of these efforts so small, and what can we do about it?

To attempt an answer, we first need to deconstruct this phenomenon a bit and dig into what is driving the differences. Through that, we can see that the solution to pay equity requires a much more holistic and nuanced approach.

Women Are Overrepresented in Lower-paying Occupations, Especially Out of Undergraduate Programs

Women have earned more college degrees than men since 2014, which would in theory be helping close the gap in wages. However, this has not materialized. Why aren’t those degrees translating to better pay?

The answer might lie in what women and men are studying in college, and how their degrees are compensated after graduation. In the 2020-21 academic year, for example, there were 95,000 Bachelor’s degrees in engineering awarded to men, compared to 30,000 to women. Their average starting salary out of college is higher than $100,000. Similarly, 81,921 Bachelor’s degrees were awarded to men in computer and information sciences compared to 22,953 to women.

Conversely, 74,013 Bachelor’s degrees were awarded to women in Education ― the lowest-paying field of study, research shows ― compared to 15,385 to for men. Another 227,272 Bachelor's degrees in health professions and related programs are awarded to women in the U.S. (starting salaries around $45,000), compared to 39,382 degrees in the same field awarded to men. The growth in women graduating from college isn’t enough to overcome their underrepresentation in higher-paying professions.

Taking Time Off for Family Has Impacted Career and Wage Progression

According to the Department of Labor, unpaid family caregiving reduces a mother’s lifetime earnings by 15 percent, which also creates a reduction in retirement income. This suggests a measurable effect of women being unfairly punished for taking time to have children. This phenomenon alone could account for the majority of the gender pay gap in like-for-like positions.

We can indirectly observe this effect play out in pay equity data based on age. The Pew study notes that from 25 to 34, women earned an average of 92 cents for every dollar earned by a man in the same age group, an 8-cent gap, in 2022. That same year, the gender pay gap among workers of all ages was 18 cents. In other words, in the years immediately after men and women often graduate from college, the gender pay gap is smaller than during their mid-to-late-30s, when many couples are raising children.

Since wages tend to increase over a worker’s lifetime, the income women lose when leaving the workforce after age 34 is likely more significant than the income they would lose earlier in life, compounding the problem every year thereafter, leading to even more dramatic inequity in retirement.

Inequity Persists in Hiring Process

Some of the problems outlined above could be addressed when hiring women in mid-career. For example, if a man and a woman were being recruited for the same Finance Manager role, and the targeted salary for that role was $120,000, hiring the woman might correct a gap created earlier in her career caused by differences in education level or the time she took away from work to have children.

This example is atypical of reality. Companies often decide their starting offer by providing a percentage increase from the applicant’s prior role (e.g., a 10-15 percent raise compared to the previous job). This only serves to reinforce the gender pay gap and allow the problem to persist, and multiply over time from a dollar perspective as salaries grow.

While a few states have passed laws preventing companies from asking for an applicant’s current salary, many have not. Even in states where those laws exist, candidates who provide that information voluntarily anchor their salary targets in their own history of compensation, rather than the market rate for their job. Many don’t even know the market rate when negotiating pay.

Companies are of course incentivized to maximize profits by keeping costs as low as possible to deliver the required revenues and growth. If employers can keep wage growth low without sacrificing productivity, turnover, etc., this problem is likely to persist.

Implicit Bias still Plays a Role

If the pay gap could be reduced to a simple math problem, perhaps the solutions would be more straightforward. But evidence exists that implicit bias persists.

When asked about the factors that play a role in the gender pay gap, half of U.S. adults point to women being treated differently by employers as a major reason, according to a 2022 Pew Research Center survey. Studies around hiring processes showed that when two resumes were reviewed by an employer, and the only difference was the applicant’s name (one a man’s name and the other a woman’s), the man was perceived to be more qualified or more closely meet the qualifications than the woman.

Real-world examples reveal the same issue: one study showed if identical products were sold on eBay, female sellers received offers 19 percent lower than male sellers. Even when controlling for all other factors (time of sale, seller reputation, etc.), the gap persisted. This suggests implicit bias could be playing out in the workplace unknowingly, at the expense of women’s income.

Solutions

The key to solving the gap is understanding the core root of the issues. Looking at the causes above helps identify potential solutions, such as:

• Encourage and sponsor women to enter higher-paying fields out of college, or train them early in career: Without early intervention, if higher-paying early-career roles are disproportionately male, an initial gap will form that will be more difficult to overcome as compensation compounds over time. More effort should be made to get women into engineering, computer science, AI, robotics, sciences, and other STEM fields to help close that gap. Additionally, companies could take a more proactive role as well by offering more training programs for early career women in these fields (i.e., computer programming) to help move more women into the field within their organizations.


• Implement a more objective, range-based hiring practice: Rather than using an applicant’s prior role to determine her salary, establish a baseline or minimum level for each role based on the organization’s compensation philosophy. This can help reduce pay gaps that form at the point of hire. It won’t necessarily close the gender gap entirely ― some individuals will always be paid more than the minimum ― but it will allow companies to proactively narrow the gap for women via pay equity audits and other practices.


• More widespread legislation to prevent harmful practices or proactively correct them: If more states passed laws preventing companies from asking for salary information, and more states passed pay equity laws requiring the right analysis of pay gaps and corrective plans of action, it would help close gaps more quickly and drive the right action planning on a regular basis.


• More diligent efforts to remove bias: removing names from resume screens, ensuring more balanced representation in interview panels between men and women, looking at promotion rates, training utilization, etc. could help correct unintended unconscious bias.


• Policy changes for family leave: Women who take time off for family leave should not have prorated merit or salary increases. Efforts should be taken to evaluate the career path for women returning to work, and ensure the right opportunities are provided to balance out inequities in advancement. With the right proactive approach, companies can close unintended gaps created by their policies and practices.

The gender pay gap is a solvable problem. It requires a collective effort among local communities, schools and universities, state and federal governments, and companies to help close the gap. By truly understanding where the problem is created, we can devise pragmatic solutions that move median salaries closer to equality.

Author Bio

Jesse Meschuk is a Senior Advisor with Exequity. Jesse is a career and human resources expert specializing in compensation. He has more than 20 years of consulting and human resources experience and has worked across a wide variety of industries including technology, entertainment, gaming, retail, hospitality, and sports. Jesse’s work has spanned across the Americas, Europe and Asia and he has considerable expertise on how to successfully manage a diverse, global culture.