The Gender Wage Gap - How Can We Close It?

The year is 2021 - more and more women decide to pursue career paths in the fields commonly perceived as male-dominated. They consistently climb their way to the top as the number of women leaders keeps rising and even outnumber men at higher education institutions. Over the past hundred years - apart from obtaining voting rights - women have managed to discover nuclear fission and radiation, manually orient a spacecraft, or invent a wide range of contrivances - from bulletproof Kevlar fiber and central heating to the space station batteries.

Yet, gender-based inequality still pervades societies and economies all around the globe.

In order to properly commence the celebrations of upcoming International Women's Day and the ongoing Women's History Month, I have decided to devote this post to address one of the biggest inequalities faced by women from an economic point of view - the problematic gender wage gap - and elaborate on potential solutions to combat it. All right, let's start with the basics.

What exactly is the gender wage gap?

This term refers to the average difference between the remuneration obtained by working men and working women, calculated according to statistical data from agencies researching the labor market.

We can distinguish two different numbers describing the wage gap – the non-adjusted and the adjusted one. The non-adjusted gender wage gap depicts the divergence between median remuneration for men and women; meanwhile, the second considers an employee's age, education level, industry, location, and length of work experience.

We should also remember that the pay gap refers solely to the differences in employees' wages, indicating that it does not include the revenues from non-employment contracts, like corporate profits or the income produced by financial assets owned. In fact, due to the significantly lower number of women entrepreneurs and investors, income gaps happen to be even larger than wage gaps.

The Global Gender Gap Index 2020, calculated by the World Economic Forum, has evidently revealed that none of the countries has yet achieved gender parity in wages. The OECD's data estimates the difference between men's pay compared to women's salary to be approximately 13,5%. According to PayScale, in 2020, "women in the US earned 81 cents for every dollar earned by men," comparing the median salary regardless of job type or worker seniority. Meanwhile, women in the European Union "earn on average almost 15% less per hour than men," on the report of the European Parliament. Estonia has topped this list, with its gap reaching 23%, while the lowest divergence has been recorded in Romania (3%).

"But what about all of the additional factors not taken into account while calculating the standard version of the gap?"

As you might know, general statistics related to this phenomenon present the difference between median wages of men and women working full time but do not tell how it looks for women in different fields or, generally, workers with various qualifications, experience, and hours worked.

Unfortunately, after considering all of these factors and even more, disparity persists. PayScale's researchers have found that "There remains a disparity in how men and women are paid, even when all compensable factors are controlled, meaning that women are still being paid less than men due to no attributable reason other than gender."

It is also crucial to note that women of color experience this issue to an even greater extent than white women, which points out the detrimental effects of combining gender bias with racial discrimination.

Gender gap from an economic perspective

The gender wage gap is perceived as a serious obstacle not only by women having to work longer hours to obtain a salary equal to men's but also by the economy itself.

According to the Australian Department of Families, Housing, Community Services and Indigenous Affairs, "The researchers estimated that a decrease in the gender wage gap from 17% to 16% would increase GDP per capita by approximately $260, mostly from an increase in the hours that females would work. Ignoring opposing factors as hours females work increase, eliminating the whole gender wage gap from 17% could be worth around $93 billion or 8.5% of GDP."

So what are the reasons driving the gender wage gap, then?

We might find the answers in the same study: "lack of work experience was 7%, lack of formal training was 5%, occupational segregation was 25%, working at smaller firms was 3%, and being female represented the remaining 60%." According to the 2012 study by the American Association of University Women, "over the course of 47 years, an American woman with a college degree will make about $1.2 million less than a man with the same education."

It has also been proved that even when the reasons behind the gap were entirely voluntary, it would still pose a major threat from a public policy perspective, since it reduces the overall economic output and increases the probability of women depending on welfare payments, particularly in the later years of their lives. Moreover, certain neoclassical economic models clearly point out that discrimination performed by employers is simply inefficient – while the employment of a specific group becomes limited, it raises the wages of the other groups that do not face discrimination. Therefore, it allows gaining a competitive advantage by other companies, employing disfavored workers at a lower cost.

How long would it take us to close the gender gap?

Ten years? Maybe twenty? If those were your guesses, I have to disappoint you. Just as stated in the preface to the research prepared by the World Economic Forum: "At the present rate of change, it will take nearly a century to achieve parity, a timeline we simply cannot accept in today's globalized world." One hundred years!

So, what should we do to speed this process up?

First of all, women need to be able to lead the conversation on implementing gender equality. Sounds obvious, right? Unfortunately, due to significantly lower representation in political debates, men tend to discuss issues that exclusively affect women more frequently than women themselves – not only in economic aspects.

Secondly, we need to stand together in shifting cultural paradigms propelling prejudice towards women. Many people still believe that sexist jokes are acceptable in different contexts since 'they are just jokes,' while sexual harassment happens to be explained as a way to compliment women, undermining the fact that it simply is a serious form of violence.

We should also actively work against two major issues – 'glass ceiling' and 'sticky floor.' The first term was coined by the American Magazine World authors in 1984 "Women have reached a certain point – I call it the glass ceiling. They're in the top of middle management and they're stopping and getting stuck." Meanwhile, 'sticky floor' describes an employment pattern resulting in women more frequently occupying low-paying and low-mobility jobs (like administrative assistants or maintenance employees) than men. Encouraging women to pursue more sophisticated careers and creating more space for the female presence should be on the top of our to-do list if we hope to bring about change.

More specific visions

These solutions are crucial, yet we need to identify more specific initiatives aimed at combatting the gender wage gap to start implementing equality. Therefore, let's delve into several suggestions:

- Focusing on girls' education

The first and the most urgent milestone to reach in the fight for economic and social equality is to ensure access to education. Government policies have boosted the number of women participating in the workforce in many countries; nonetheless, the situation is still far from perfect - data collected by UNESCO states that as many as 132 million girls worldwide are out of school, with COVID-19 significantly exacerbating this number.

But how powerful of a solution does education make? According to the 2018 study by the International Monetary Fund, "Gender Equality: Which Policies Have the Biggest Bang for the Buck?" policies aimed at narrowing gender gaps between men and women in education have paid off the most in all regions. As IMF has shown on the specific example, the "evidence from India suggests that female labor force participation in India would rise by 2 percentage points with an increase in spending on education of 1 percent of GDP."

Wider access to education would inherently equip girls with the essential tools in advancing their material situation in the future.

- Introducing pay transparency and flexible working hours

Apart from being beneficial for a company's corporate policy, pay transparency is one of the simplest practices to prevent wage injustice and minimize the gender pay gap in the workplace. It would enable employees to compare their salaries to assess whether discriminatory practices of compensation occur; meanwhile, the employers would be aware of potential consequences of disregarding wage regulations.

Multiple studies have proven that one of the main reasons behind an increasing gender pay gap is having children. This phenomenon has been called the 'motherhood penalty' and describes the disadvantages women face after deciding to pursue parenthood. According to the 2018 study by S. Jensen, A. Bütikofer, and K.G. Salvanes, "the gender earnings gap for MBA and law graduates is around 30% 10 years after childbirth." Another research performed by H. Kleven, C. Landais, and J.E. Søgaard regarding the Danish economy has shown that "the arrival of children creates a gender gap in earnings of around 20% in the long run." Meanwhile, a 2019 study conducted by L. Hipp in Germany has confirmed that "women with children are discriminated against in the job market, whereas men with children are not." Introducing flexible working hours (especially due to the growth of the gig economy) could make it significantly easier for women to perform more sophisticated jobs, even when they decide to pursue motherhood.

- Implementing gender-blind hiring

Another solution to encourage more women to enter more sophisticated jobs and reduce the scale of the 'sticky floor' phenomenon is to remove all identifying information from the recruiting process to evaluate candidates solely on their abilities to perform a job. Moreover, one of the leading ideas on implementing this solution includes using machines in hiring people. Since human biases are the main obstacles, technology seems to be an ideal solution to this issue, right? Well… we need to be careful here.

It is important to stay aware that advanced algorithms used in constructing the AI tools more frequently used in the recruiting process are constructed by humans. That makes them inherently exposed to all of the harmful assumptions one can make based on race, gender, religion, or social status. Therefore, it is crucial to make sophisticated efforts in protecting algorithms from human biases, just as Kriti Sharma has stated in her renowned TED Talk "How to keep human bias out of AI."

Then, it is possible to make progress in constructing an equal recruitment process.

- Encouraging women to become leaders

There is no need to explain how much this step would advance the position of women in the economy and society in general.

'But men are natural leaders' - one may argue. Well, I might surprise you here… According to the Harvard Business Review's data collected from 360-degree evaluations (taking into account the feedback from employee's supervisors, subordinates, colleagues, clients, and self-evaluation) of 7,280 leaders, "women scored at a statistically significantly higher level than men on the vast majority of leadership competencies we measured." Moreover, "two of the traits where women outscored men to the highest degree — taking initiative and driving for results — have long been thought of as particularly male strengths."

Then, why only 6% of S&P 500 companies have a woman CEO?

Many research papers confirm that this discrepancy is rooted in the reasons already mentioned in today's post - unconscious bias surrounding hiring and promotion.

- Fighting the gender-investment gap in early-stage funding

The economic differences between incomes of women and men do not limit themselves only to the nine-to-five jobs. In fact, female entrepreneurs face even greater adversity than their male counterparts, which is one of the issues that shall also be addressed.

According to the recent study performed by Pitchbook and Techleap, "only 13% of all Venture Capital is invested in mixed-gender teams and less than 1% in female founder teams". Sounds terrifying, right? Additionally, due to COVID-19, the percentage of funding provided to female entrepreneurs has reached a three-year low!

This type of inequality causes a particularly vicious cycle, leaving female founders significantly more likely to toss out their entrepreneurial visions since it is noticeably harder for them to raise the necessary capital. Therefore, it is crucial to implement regulatory and institutional factors creating an equal playing field, change the perspective of education, and raise awareness of female business success.

What we need to pay particular attention to - intersectionality

It is essential that, when addressing gender-based inequality, we speak up for all women – not only white women or the ones that live in developed countries. Our efforts should also reach Black women, Indigenous women, Jewish women, Muslim women, Latinx women, Asian women, poor women, immigrant women, or disabled ones.

We cannot let all of these efforts slide into the abyss of excuses fueled by any kind of prejudice but create factual change.

Conclusion? Remember that we CAN reach equality!

Just as Klaus Schwab has stated in the preface of The Global Gender Gap Index 2020: without equally including half of the world's potential and talent, it will be impossible to deliver on the promise of the Fourth Industrial Revolution for everyone or to reach the UN Sustainable Development Goals. Therefore, it should be a priority to enable the full potential of the human race to flourish so that we could all reap the benefits of continuous advancements.

I wish all women an endless sea of opportunities to fulfill their professional aspirations and fewer obstacles on their way to the top! I know it is not easy to advocate for topics quite unwelcomed by the naturally resistant society, especially that gender-based inequality is often interlinked with religion and politics. Nonetheless, it is absolutely possible to get to the dream stage step by step, and this is what I hope we can achieve standing up for each other hand in hand.