The Truth Behind the Gender Pay Gap

By Jessica Thiem:

One of the most common arguments made about the gender pay gap is that it simply does not exist, but that is definitely not the case. Despite the workforce being split fifty-fifty and women obtaining more college and graduate degrees than men, there is still a large pay gap between men and women in America today.

It is a well-known fact that women are continuing to earn quite a bit less than men, no matter what occupation. The average woman working full time earns 80.5 cents for every dollar earned by a man. This results in a gender wage gap of 20%. If the wage gap continues to change at the steady pace it’s at today, pay equality won’t be reached for another 41 years.

Take a look at what key factors contribute to the un-ending gender wage gap in the United States today.

Women’s Choices

Skewed perceptions of the wage gap emphasize that women “choose” different and lower paying college majors than men. A number of women choose to stay home or turn part-time after having children, but some do not. Some women aren’t given the choice and are forced to remain home because they cannot afford childcare, or find a company that offers a flexible work schedule.

Culturally, Americans remain ambivalent about women working outside of the home. A little more than 30% of Americans still believe women should stay home full-time to care for young children. These biases, which play out both in and outside the workplace, affect how much “choice” some women feel they actually have.

And, it speaks to the types of judgments women face for making said choices. Women face a well-known “motherhood penalty.” They’re less likely to be hired for jobs once they have children — unlike men, whose prospects improve.

Measure of Success

All successful firms have a success orientation — conscious or unconscious. Nevertheless, how that success is defined can greatly impact how people are identified for promotions.

If that success definition is linked to overall compensation amount, women will be at a disadvantage. According to the ADP Rethinking Gender Pay paper, lower salary employees may be overlooked for promotion compared with a higher paid employee of the same ranking. If a manager’s success orientation is pay, then that manager is more likely to view a more highly compensated employee as more skilled or talented than a lower compensated employee.

As this plays out, the pay gap either widens or becomes established. Essentially, an employee who negotiates lower incentive pay at her time of hire may be accidentally reducing her career advancement. Women tend to be more hesitant about negotiating their salary because they see it as a desperate act or something that is frowned upon. Negotiating starting pay might even be intimidating for some women.

Overall, low starting compensation and incentive pay have become a major limiting factor that prevents and slows career advancement for women. For this reason, lower starting compensation, and its long-lasting impact is one of the most potent contributors to the ongoing gender pay gap.

Gaps in Age Groups

When categorizing new hires by age and income, women ages 20 to 30 with a low starting salary had near equal base pay of men; however, the base salary gap worsened for females after six years. Additionally, when a bonus is factored in, young women fared the worst with a 21% less bonus to base ratio compared to their male peers.

However, for the 40-50 age group, men and women started their careers with almost no base salary gap for all income groups. The discrepancy here is with incentive pay, especially with the lower income group. In the $40,000 to $60,000 income range, female workers received an average bonus of 8.5%, whereas men received 11.4% — a gap of 74%.

Industry Pay Gaps

When looking across industries, incentive pay made some well-defined impacts. Women in the information industry make 7% more in bonuses to base ratio than men, which reduced their overall gap in total earnings. In contrast, women in the finance and real estate industry are earning 21% less in their bonuses to base ratio compared to men.  The industry has the largest pay gap for women with and without incentive pay.

The average bonus amount for women was less than two-thirds of the amount paid to men who had equivalent base pay, age and time with the company. This incentive pay imbalance was observed across all age, salary and industry groups from the moment of hire and persisted throughout the 6-year study window.

The gender pay gap is still existent in our world today, but there are ways we can help bridge this divide. As individuals, women can learn strategies to better negotiate for equal pay. The American Association of University Women’s salary negotiation workshops helps empower women to advocate for themselves when it comes to salary, benefits and promotions.

For policymakers, the Paycheck Fairness Act would raise the opportunity of the Equal Pay Act with stronger incentives for employers to follow the law, improve federal enforcement efforts and prohibit retaliation against workers asking about wage practices.

Lastly, while some CEOs have vocalized their commitment to fair pay for their workers, American women cannot wait for trickle-down change. The American Association of University Women strongly suggests that companies regulate salary audits in order to regulate and address gender-based pay differences. All of these efforts are critical elements as we work to close the gender pay gap.

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