Understanding and Mitigating the Gender Pay Gap
Nerre Shuriah
JD, LLM, CM&AA, CBEC® | Senior Director of Wealth Planning
The national workforce is constantly evolving. Some of these changes are decades-long trends, like the increase in female breadwinners and the number of unmarried and single households in modern society. Others occur more rapidly, such as men dropping out of labor participation as a result of the pandemic.
When we consider these trends alongside the persistent gender pay gap, the ripple effects of compensation disparity become even more important to mitigate in one's own financial planning, as well as within the workplace.
The changing US workforce
Since the 1960s, the US population has changed dramatically. According to the US Census Bureau, about half of American adults—or about 127 million people—are unmarried. There are also 10.9 million one-parent family groups with a minor child, and 80% of these groups are headed by a mother. By 2017, 41% of married women were the primary or sole financial support for their families.
This statistic understates the importance of a woman's income-producing role. Throughout a child's minor years, 70% of American mothers can expect to be the primary earner for at least one year, although the average is 6 years. Women as the primary breadwinner occurs across all economic and education levels.
The pandemic had a significant impact on some of these patterns. During the early phases of the pandemic, mothers experienced job losses at twice the rate of fathers. Female employment in the US declined by 17.9% between February and April 2020 compared to the previous year, which is much greater than the 13.9% decline in male employment. Since the release of COVID-19 vaccinations, the recovery of female participation in the workforce has had a significant increase. However, with this increase comes some considerable risks.
Mitigating pay-gap risk
First, the increased burden on female primary breadwinners is exacerbated by the reluctance of men to re-enter the workforce now that the pandemic has relented. According to the US Department of Labor, a declining share of men are in the workforce, with only 88.5% of working-age men seeking employment as of October 2022. Nonparticipation is most noticeable among younger men, which puts an even heavier burden on women to be the primary breadwinner.
Second, the employment gap some women took during the pandemic for caregiving or other reasons may have an outsized impact on their compensation. When women attempt to return to work after taking time off for maternity, childcare or caregiving, the time lost at work translates into lost competitiveness in compensation, fewer lucrative assignments and lost retirement savings.
Impact over a work life
While the gender pay gap has been slowly closing over the years, it still exists—with women earning 82 cents for every dollar a man earns. However, this doesn't tell the whole story. Women earn 90% of what men are paid until age 35, and after that they earn between 74% and 82% of what men are paid.
What does this mean in terms of dollars? Let's consider Robert and Renee, who join the workforce at the same time, are similarly qualified and perform at the same level.
Robert makes 10% more than Renee, which is likely because men are four times more likely to negotiate their first salary than women. The first few years, they both earn an annual merit increase of 2%.
Both Robert and Renee change jobs. However, Renee's bump in compensation is 10% less than Robert's increase. Again, Robert will likely negotiate a higher salary, whereas if Renee negotiates she's less likely to receive a raise.
Renee also takes maternity leave twice during her 30s, creating a plateau in her compensation. Generally, when an employee is out for maternity leave, it's more difficult to meet goals or qualify for a bonus or wage increase.
Both Robert and Renee receive a promotion. Because Renee is older than 35, her pay gap increases to 20%.
At age 49, Renee takes 3 years off to care for an elderly parent, as two-thirds of women are likely to do throughout their lives.
Remaining merit increases from this point to age 65 are 3% annually for both Robert and Renee.
The total compensation for Robert and Renee results in a major difference. At age 65, Robert's lifetime earnings are $4,331,238, while Renee's are $2,927,470—amounting to a difference of $1,403,768. This example doesn't account for the loss of appreciation for any portion of a salary that's saved and invested.
Impact on retirement income
The gender pay gap will follow a woman's finances all the way through her work life, resulting in a lowered ability to save for retirement. Lower wages mean less savings—and thus less investments. It also means smaller Social Security payments. According to the US Social Security Administration, the average annual benefit for men ages 65 and older was $17,374 in 2019. For women of the same age, it was $13,505—a difference of 22%.
This gap is even more significant for women of color. Black women lose $976,800 over a lifetime, while Latina women lose $1.2 million—resulting in a potential loss of $4.5 million in retirement.
Additionally, women typically live longer and must manage finances alone later in life, so they have more years to factor into their financial outlook. Today, an average woman's life expectancy at birth is 80.4 years, compared to 75.2 years for men.
Actions women can take
One powerful way women can combat the gender pay gap is through financial literacy. As women handle the day-to-day finances, make financial decisions and sit in the financial driver's seat, they should increase their ability to budget, have a financial plan, understand how to invest and employ a financial professional to guide them when making decisions about achieving goals.
Women may also want to consider negotiating their salaries more often—even with the risk of not getting what they want. Although it goes against societal norms, not negotiating can result in lost money for the entire family. Employing these strategies can help with any salary negotiation.
- Understand the marketplace. Women prepping for a negotiation should research peers with similar experience and education in comparable positions and bring these results to the conversation.
- Illustrate value. Many women don't promote themselves or their successes enough at work, so it's important to succinctly and plainly explain the value they bring to an organization.
- Be collaborative. Women are more likely to succeed when they approach a salary negotiation as a collaborative effort between an employee and employer.
- Negotiate beyond salary. Negotiating other benefits can offset the focus on salary while still increasing overall compensation and satisfaction. This can include benefits like 401(k) matching based on student loan payments, life insurance, childcare benefits, coverage for specialty medical treatments, fair maternity or paternity leave, additional time off and sabbatical for charitable endeavors. Not only are these valuable, but they can also increase overall quality of life.
Actions employers can take
As more women become business owners, managers and leaders, they can help set positive trends. But they can't eradicate the compensatory gender disparity alone. Employers must also help to combat the way women are valued in the workplace. Here are some things they can do.
- Be transparent about pay. The more aware employees are of what each position earns, the less chance there is for disparate pay.
- Try non-negotiable offers. Several companies are adopting hiring rules that make salary offers non-negotiable. These take-it-or-leave-it offers reduce the opportunity for managers to give more compensation to some candidates and less to others in the same position.
- Consider bias training. Raising awareness of unconscious bias with a company's hiring procedures can help hiring managers recognize their own behaviors. This requires a concerted effort, though, because raising awareness of inherent bias isn't always enough to eradicate it. Techniques can include standardizing interviews, using blind software to review resumes and setting diversity goals.
The bottom line
As women tend to shoulder a heavier financial burden due to workforce and family dynamic changes, the resulting gender pay disparity often causes substantial negative repercussions in terms of less savings and additional financial burdens as they and their families age. By using these strategies—from negotiating salaries to better understanding their workplace value—they can more clearly and succinctly demonstrate their worth and further close this gap.
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