Gender pay gap and pay equity: Everything you need to know

This post on “The Gender Pay Gap is Real” also appears as an article on LinkedIn by the same author. It is cross-posted to the Payscale blog. The opinions in this post belong to the author.

If you didn’t know, Wednesday, March 24, 2021 was Equal Pay Day. Following a proclamation from the White House, this day is now recognized as National Equal Pay Day.

Equal Pay Day isn’t exactly a day of celebration. It is a calendar day that recognizes how long it takes for women to earn what men did in the previous year. That this day of awareness has been happening every year since 1996 without managing to close the pay gap is ridiculous and the reason for this post.

It also doesn’t matter that this post is not being made on Equal Pay Day. Because pay equity isn’t a once-a-year thing. Pay equity should be continuously on the minds of employers and — along with pay transparency — a central pillar of compensation strategy. This is the only way to close pay gaps and ensure that all employees, regardless of their gender, race, or ethnicity, are paid fairly for the jobs they do and not what they deserve according to who they are perceived to be by humans with unconscious biases.

Equal Pay Day is also the day that PayScale released its 2021 State of the Gender Pay Gap Report. There is a lot I can say about this report and the fabulous team of data scientists, analysts, writers, graphic designers, and developers who put it together, but I want to start with the obvious:

Not everyone understands the gender pay gap.

In fact, most people do not seem to. Nearly half of men don’t believe that the gender pay gap is real. Others don’t believe that it matters. I have seen people assert on social media that the gender pay gap is a hoax for media or political theater, that the gap isn’t significant, and even that the research analysts who create gender pay gap reports must not understand that there are perfectly reasonable explanations for pay gaps that are not based in sexism or discrimination. These assertions seem to stem from the belief that women and men already have equal opportunity — at least in America — and therefore a gap can’t be real. I have also seen very well-meaning advocates for the equality of women misrepresent the gender pay gap, asserting that women only receive 80-something an hour for doing the same jobs as men. This is also incorrect.

I work on a research team for a compensation company. Allow me to set the record straight.

The Gender Pay Gap is Real

The gender pay gap definitely exists. It has been shown to exist by multiple, independent studies conducted on different data sets by totally different institutions. PayScale’s State of the Gender Pay Gap Report is just one of these research studies. Although methodologies and data sets vary, leading to slightly different numbers, all studies show that there is a gap between what men and women are paid and these findings are consistent year over year. Research on the gender pay gap uniformly show that the gap has been closing since the Equal Pay Act was signed in 1963, but progress has been torturously slow. After a year like 2020, where unemployment skyrocketed and is disproportionately high for women, the gender pay gap may actually widen.

In essence, this is an urgent call to action for pay equity. Employers have power over this situation, and it is in every organization’s best interest to aggressively take action around pay equity and pay transparency to close the gender pay gap. This isn’t only a moral imperative. It is also fast becoming a legal one. Pay equity laws are on the rise at the state level, and if the Paycheck Fairness Act passes in Congress, pay equity will also be required at the federal level.

To understand why this is essential, let’s first look at the numbers.

Women Are Valued Less than Men in the Workforce

According to PayScale’s data, women make $0.82 for every $1 men make. This is called the uncontrolled pay gap and it is a measurement of how much men make compared to how much women make on average regardless of job title. This is not a measurement of equal pay for equal work. Rather, it is a measurement of the types of jobs that women hold in the United States compared to men. This measurement matters because it tells us how women are valued in the workforce and by our society compared to men holistically.

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The data are statistical. This means that we are analyzing women and men in the workforce at a grand scale and small numbers matter. People who assert that there isn’t a gender pay gap often don’t think the numbers are correct because they haven’t seen signs of discrimination in their own lives. These people might care deeply about equality in the companies they own or work for. They might be women who have personally succeeded in their career ambitions without encountering any resistance they would deem as sexist. But anecdotal experiences tell only one story. Data-based research tells the story in aggregate. This is why research into the gender pay gap is so important. It’s not about you. It’s about all of us, including the stories you are not seeing—the ones that are invisible.

Here’s what shocks me:

Women do not hold the highest paid jobs in a single occupational group, not even occupations where women are more heavily represented, like education, which actually has one of the largest uncontrolled gender pay gaps. The same is true of the legal professional. This doesn’t mean there are no highly paid female educators or lawyers. What it means is that highly paid female educators and lawyers are the exception, not the rule. Most women in the legal profession occupy lower paid positions compared to men. When data are controlled, the education and legal occupation groups do close the pay gap, but they are of only a handful to do so.

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If women and men were equal, these numbers would be much more distributed. There should be quite a few occupations and industries where women make more than men and the gaps should be smaller overall.

So why isn’t this the case?

The Gender Pay Gap is Rooted in Gender Norms

The source of the gender pay gap boils down to how society views women and assumptions that are made about the roles that women are best suited for. This isn’t necessarily a condemnation of men’s attitudes toward women. Women themselves can make self-limiting assumptions about their own capacity for careers and advancement.

But that’s not their problem. It’s our problem—as a society.

The problem is systemic. It is baked into the culture of our society. It starts at birth and accelerates in grade school. By the time women reach adolescence, they have already been bombarded by messaging that their worth is tied to their beauty, capacity for warmth, prospects for love and marriage, and especially the expectation that they will have children someday and potentially drop out of the workforce. Women and girls may also absorb messaging that they lack certain traits that align to higher pay, such as mathematical ability, handiness, logic, aggressiveness, or leadership skills.

In other words, women and men are presorted into occupational paths based on gender norms before they even have a chance to assess their own desires, abilities, and potential.

And before you complain, this is not a condemnation of traditional feminine traits or motherhood. But it should evoke a serious line of inquiry: Why are only women expected to sacrifice their pay and career potential to have children when both men and women become parents? Research has shown that women receive a pay penalty for having children while men actually get a pay boost. This phenomenon is known as the Motherhood Penalty and the Fatherhood Premium respectively. In a related vein, why are occupations concerning the education and well-being of people valued less than other occupations? Is it because they are actually less important? Or is it because they are considered “women’s work” and women are considered less valuable?

Think about it.

A gender pay gap is real. It exists because women are viewed as less valuable to the workforce than men. Arguably, the uncontrolled gender pay gap shows the degree to which society feels that men should earn paychecks while women belong in the home. Although women may freely choose to enter less demanding (and therefore less lucrative) careers to have children, this is not a satisfactory answer for the gender pay gap. The gap measures the extent of the problem. The solution is not to explain the gap, but to close it. To have equality, you must eradicate the expectation that it is women’s duty to achieve less financially because they are expected to have children. In a truly equal society, both men and women would occupy high paying positions in equal degrees, and both would take absences from work to have and raise children in equal amounts.

Women Also Don’t Get Equal Pay for Equal Work

We can debate whether there are inherent differences in the sexes meaningful enough to predisposition men and women toward different occupations and life choices naturally. However, what we absolutely should not be debating is whether women should receive lower pay for doing the exact same jobs that men are doing.

And yet, this is also happening.

PayScale’s research also measures the controlled pay gap—equal pay for equal work. We control compensation data for compensable factors such as job title, years of experience, location, and skills. When we do this, we find that there is still a gap. Women with the same jobs as men make $0.98 to every $1 that men make.

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The gender pay gap is real. This two percent gap is statistically significant according to our model. It is also consistent across the board, without fluctuating year over year, indicating that the pay gap is not highly variable but rather a constant trend throughout the workforce. The controlled gap persists across every occupation and industry, even those that are dominated by women.

And it won’t close. The controlled gender pay gap has been sitting at $0.98 since 2015. It has closed one penny since that time. People who shrug at this number are accepting that it is okay that women are valued slightly less when doing the same jobs as men.

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The Gender Pay Gap Widens for Women of Color

It would be wrong to talk about the gender pay gap without addressing intersectionality. PayScale’s research on the gender pay gap shows that women of color experience even wider gaps, which compounds their losses over a course of a career.

According to PayScale’s State of the Gender Pay Gap Report, American Indian and Alaska Native women see the largest uncontrolled pay gaps in 2021, earning only $0.69 for every dollar earned by a white man. When the data are controlled for job title, years of experience, location, and other compensable factors, Black or African American women show the largest pay gap at $0.97. Men of color also make less than white men, though more than women of color. Indeed, men of all races make more than women of all races, including white women.

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Keep in mind that these numbers are not small. Statistically, they represent significant gaps — thousands of dollars in lost earnings which are compounded as women and people of color are shunted from progressing up the career ladder or age out of pay increases.

The gender pay gap also widens by age and by job level, meaning that women plateau in their earning potential earlier — and at a lower amount — than men. According to previous research by PayScale, women’s earning potential starts to plateau in their late thirties and peaks at age 44 while men’s earning potential doesn’t start to plateau until their late forties and peaks at 55. This is an enormous difference that contributes not only to the gender pay gap, but the overall wealth gap between genders.

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Most women of color are even more likely to stagnate in their careers compared to white women. Sixty-six percent of Black or African American women and 67 percent of Hispanic women are individual contributors compared to 62 percent of white women and 59 percent of white men. In other words, Black or African American women and Hispanic women have a harder time climbing the corporate ladder.

There’s more that can be said about this. If you still aren’t convinced that wages between men and women are not equal, please check out the entirety of PayScale’s State of the Gender Pay Gap Report.

But the takeaway is clear: The gender pay gap is real—and it is hurting the ability of women to realize their full potential.

How Employers Can Close the Gender Pay Gap

The near future of compensation strategy is pay equity. Every employer has a responsibility to not only assess whether they have a gender or racial pay gap and remediate if one exists, but to make pay equity central to compensation management in an ongoing basis. This means not only paying women and minorities fairly compared to men, but paying every employee fairly based on the job they are doing.

This is what employees expect. Salary data are ubiquitous, technology has evolved, and pay transparency at least at the individual employee level should be non-negotiable. Pay transparency has shown to close the gender pay gap. This isn’t because transparency itself is magical; it is because in order to be transparent, organizations have to fix the aspects of their compensation management processes that lead to inequities in the first place.

Although pivoting to pay equity and pay transparency is not as simple as it may seem to people who don’t understand the complexity of compensation practices, it’s not an impossible, herculean ambition either. It does require that organizations invest in compensation strategy and develop formalized pay structures for their jobs. This means that they need to invest in data, people, processes, and technology to make compensation a strategic and manageable aspect of their business. But, frankly, every organization should be making these investments to some degree anyway.

Again, employees expect this. People tend to assume that the majority of businesses — especially large ones — have data, people, and organized processes in place for determining compensation and paying workers fairly. When they are not paid fairly, they think it’s because employers are just greedy and intentionally undercutting them to save a buck. But this is incorrect. According to PayScale’s Compensation Best Practices Report, over 80 percent of organizations assert that their approach to compensation is to pay fairly to market in order to engage employees—less than 8 percent pay as little as possible to save money. However, 56 percent of organizations admit they don’t have a compensation strategy or are unsure if they have one, and 25 percent say they don’t have a formal pay structure for any of their jobs or don’t know if they do.

Those are surprising numbers for quite a few reasons, and they inhibit organizations from knowing if they pay fairly or pursuing pay equity as a continuous practice. Without investing in compensation management and data analysis, employers simply can’t know if they have a gender or racial pay gap. How would you know if the gender pay gap is real in your organization if you don’t measure it?

Although pay equity requires a unique set of skills and some upfront investment, employers have multiple options when it comes to getting it done. There are services for pay equity analysis and monitoring and compensation management technology to make it easier than it has ever been before.

The more I learn about the racial and gender pay gaps and how proper compensation management can lead to universal pay equity within an organization, the less permissible it seems that organizations fail to prioritize it. After all, a company is nothing without its people. How many companies preach that people are their greatest assets? The word “company” is defined as the condition of being with others—in other words, a company is its people. And yet, around half do not have any kind of formal structure to know if they are paying people equitably.

In the end, pay equity isn’t just about racial discrimination and sexism either. It’s about paying all employees equitably for the work they do and the value they provide. It’s about using data to ensure that you are paying fairly for the job, rather than making assumptions about the worth of the person doing the job. We are all susceptible to unconscious bias, but it needs to stop being an excuse. With data and transparency, there is absolutely no reason for pay gaps to continue being acceptable.

So, will 2021 finally be the year that employers take pay equity seriously? I certainly hope so. We need #payequitynow and we need to monitor it continuously.