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Gender Pay Gap – Negative Effects of Inequality & How to Fix Wages

It’s no big secret that men, as a group, earn more than women. Even though, by law, employers must pay male and female employees the same wage for the same work, U.S. Census Bureau data shows women as a group still take home less on an hourly, weekly, and yearly basis.

There are many factors behind this gender pay gap. Part of it is due to occupational segregation — men and women working in different fields. Part of it is due to differences in work hours, with more women working part-time and men putting in more overtime. And part of it is because women take more time off for child care and other family responsibilities.

But regardless of the reasons, the wage gap is a problem. It contributes to poverty for women and families and holds the entire economy back. And because the roots of the problem are complex, there’s no simple solution to fix it.

Consequences of the Gender Pay Gap

Lower pay makes it harder for women, especially single women, to get ahead financially. Their lower earnings make it harder for them to save money for emergencies or retirement. But the impact of the gender pay gap isn’t limited to women. It also puts families at risk, especially families headed by women, and harms the economy as a whole.

1. The Gender Savings Gap

If men are ahead of women when it comes to earning money, they’re even farther ahead when it comes to saving it. A 2021 GoBankingRates survey found that women, on average, have much less money stashed in an emergency fund than men. Over 45% of women don’t have even $300 in savings, as compared to 29% of men. Nearly 25% of men have at least $10,000 salted away, but only 15% of women do.

Part of the difference in savings comes down to pay disparities. For instance, if a woman earns $80,000 per year and saves 9% of it, while a man earns $100,000 and saves only 8%, he’ll end up with around $800 more in savings each year. Over 10 years, that adds up to a difference of $8,000.

Another reason for the size of the savings gap is that women are more likely to spend time outside the workforce. A woman could save just as much of her salary during the years she’s working as her male colleagues, but if she takes five years off from work to be a stay-at-home parent, her savings during those years drops to zero.

The timing of those years off is important too. Because of the power of compound interest, a little bit of savings early on can add up to a lot more money in the long run than larger savings later.

If a woman takes several years off while she’s fairly young — or earns less during those years because she’s working fewer hours — her savings will start to lag just when it matters most. By the time she returns to the workforce and starts earning and saving more, it’s too late to catch up.

Regardless of the reason, the savings gap leaves many women living paycheck to paycheck. A 2019 MetLife poll (via CNBC) found that more than 1 in 3 women say they live paycheck to paycheck — roughly five times the rate for men. That makes it harder for them to deal with unexpected expenses and harder to save for long-term goals, such as buying a house.

2. The Gender Retirement Gap

When it comes to retirement savings, women lag still further behind their male counterparts. According to a 2019 report by the Transamerica Center for Retirement Studies, median household retirement savings for women is just $23,000 — less than one-third the median amount for men. Nearly one-third of women have less than $10,000 saved for retirement.

Part of the problem is that women are less likely than men to have access to workplace retirement accounts — partly because so many women work part-time. About 3 out of 10 women say they don’t have a workplace retirement fund, compared to roughly 2 out of 10 men.

However, this is only one factor. As noted above, women take more time out of their working lives to care for children. During those years, they lose access to workplace retirement plans.

Moreover, even women who have workplace plans don’t put as much in them as men do. A 2021 T. Rowe Price survey found that women of all ages put a smaller percentage of their earnings in a 401(k) plan than their male counterparts.

Women have several reasons for putting less into retirement plans. Because they earn less, they have less extra room in their budgets for savings. Also, according to the Transamerica Center report, women are more likely to prioritize paying off debt ahead of saving for retirement.

This gap in retirement savings is doubly unfortunate because women tend to live longer than men. That means they have more years of retirement to fund than their male colleagues, and less money to fund them.

Compounding the problem, women also tend to receive less in Social Security benefits, which are based on your average income during your working years. According to the Social Security Administration, in 2019, women age 65 and older received an average of $13,505 per year from Social Security. The average for men was $17,374 per year.

All these factors contribute to poverty among older women. A 2020 report from the Congressional Research Service shows 8.6% of women ages 65 to 69 live in poverty, compared to around 7% of men. This problem only grows worse with increasing age. Women over 80 were 55% more likely to be impoverished than men in the same age group.

3. The Effect on Families

Anything that hurts women financially also hurts families. A 2020 report from the Institute for Women’s Policy Research (IWPR) shows half of all American households with children under 18 rely heavily on a working mother’s earnings. This can be either a single mother or a married, working mom who brings in at least 40% of the family’s income.

Lower-income families depend even more on women’s earnings. According to a 2016 report by the Senate’s Joint Economic Committee, mothers provide an average of 89% of income for families at the bottom 20% of the earnings scale.

Women of color are also more likely to be responsible for supporting a family. According to the IWPR report, 74% of Black women, 58% of Native American women, and 47% of Hispanic women are primary or major breadwinners for their households.

All of this means that when women earn lower wages than men, their families are worse off as well. Their overall income is less and the children are more likely to grow up in poverty. As a consequence, they’re more likely to suffer from poor health, have behavioral problems, do poorly in school, and ultimately grow up to be poor themselves.

Improving wages for women would help their families in numerous ways. According to a fact sheet developed by the National Partnership for Women & Families (NPWF), closing the gender wage gap would give each working woman enough money to pay for:

  • More than 13 additional months of child care
  • 65 weeks’ worth of food for her family
  • More than nine months of rent, or more than six months of mortgage and utility payments
  • A full year of tuition and fees at a four-year public university, or the full cost of tuition and fees at a two-year community college

In a 2017 report, the IWPR calculates that equal pay for women would cut the poverty rate for working women by more than half. The number of children with working mothers now living in poverty would fall by nearly half. Close to 26 million children in the United States would be better off if their mothers were earning the same wages as men.

4. The Effect on the Economy

Since the 1960s, the number of working women in America has grown dramatically. According to a 2017 Brookings Institution report, only 37% of American women were in the labor force in 1962. By 2000, that number had grown to 61%. The report estimates that this increase in the workforce has boosted the nation’s economy by about $2 trillion.

However, the economy could benefit even more if women were earning the same wages as men. According to the IWPR, pay equity would increase the nation’s gross domestic product (GDP) by 2.8%, or $512.6 billion, per year.

Higher pay could also attract more women into the workforce, improving the economy even further. A 2017 fact sheet from the International Monetary Fund shows that if women worked for pay at the same rates as men, GDP in the U.S. would increase by 5%. Increases in other countries would be even higher.

In the long term, the economic gains from equal pay could be even greater because better wages for women also mean better conditions for families. Thus, higher wages for women today would mean more children escaping poverty. These children, in turn, would be more likely to grow up to be productive workers.

Over time, their earnings would improve the economy and provide tax dollars, which would help support the nation’s growing number of retirees. Eventually, just about everyone in the country would benefit.


Fixing the Gender Pay Gap

It’s easy to see that fixing the gender pay gap could have big benefits for society as a whole. What’s less obvious, unfortunately, is how to do it.

Back in 1963, the United States passed the Equal Pay Act, which requires employers to pay men and women equal wages for equal work. But more than 55 years later, the wage gap still hovers at around 20%. Perhaps the Equal Pay Act could be better enforced, but even if it were, it would be unlikely to close the gender wage gap on its own.

Because the causes of wage inequality are so complex, our society will probably have to tackle the problem from many different angles to fix it completely. Here are a few approaches that could help.

1. Pay Transparency

One of the simplest ways to address the gender pay gap is for employers to be more open about how much they pay their workers. Currently, many companies keep employees’ salaries a secret, sometimes even forbidding employees to tell each other how much they make. Salary negotiations are private and granting raises is up to the manager’s discretion.

This approach disproportionately hurts women. According to a 2018 paper in Industrial Relations, women are less likely to get raises when they ask for them than men. In a summary at Harvard Business Review, the authors say women who ask for a raise get it only 15% of the time, compared to 20% for men.

When employers have to disclose what they’re paying all their workers, they also have to come up with a reasonable, data-driven basis for their salary decisions. They can’t dismiss a request for a raise on account of some unconscious bias against “pushy” women who ask for more.

A 2020 Payscale study on pay transparency found that it can completely eliminate the gender pay gap — the difference in earnings between women and men doing identical jobs. The difference is particularly visible at the management level. Female directors make about 91% as much as male directors when pay is not transparent, but earn equal salaries when it is.

In a 2018 report, the American Association of University Women (AAUW) outlines several steps companies can adopt to make pay more transparent. These include:

  • Conducting regular pay audits to discover pay disparities based on gender, race, or ethnicity
  • Allowing employees to discuss their salaries and banning managers from retaliating against them if they do
  • Ending the practice of setting wages for new hires based on prior salary history, which penalizes workers who have been underpaid in the past

A bill in Congress called the Paycheck Fairness Act aims to make some of these steps legal requirements. It would stop employers from requiring employees to keep their salaries a secret, retaliating against those who do, or using salary history to set wages. It would also impose stiffer penalties for violations of the Equal Pay Act and require government studies of gender pay disparities.

2. More Flexible Work Schedules

According to research by Claudia Goldin of Harvard University, one of the main reasons women earn less than men is that they work fewer hours. They’re more likely to work part-time, and those who work full-time are less likely to put in long hours on the job.

These shorter hours have a disproportionate effect on women’s earnings. In many fields, workers who put in long hours are paid more per hour than those who put in fewer hours. This type of pay structure, Goldin finds, is most common in fields where people have to work one-on-one with clients and can’t hand them off to another employee.

For instance, clients of a large law firm expect to deal with their lawyer — the one who knows all about their case or their business. In this situation, two lawyers working 30 hours each per week can’t really take the place of one lawyer working 60 hours. Thus, a lawyer who works 60 hours per week is more than twice as valuable to the firm as one who works 30 hours.

By contrast, in fields where one employee can easily substitute for another, pay between men and women is more likely to be equal. Goldin cites the pharmacy field as an example.

Most pharmacists work for large companies or hospitals, where all the information they need about drugs and patients is accessible via computer. When someone comes in to fill a prescription, any pharmacist can do the job as well as any other. Two pharmacists working 30-hour weeks each are just as good as one working 60 hours.

Goldin believes one key to fixing the gender wage gap is for more workplaces to be organized like pharmacies, rather than law offices. The bad news is this kind of change can’t really be enforced through legislation.

The good news, according to Goldin, is that the workplace is already starting to evolve in this direction on its own. As she points out in an interview on the Freakonomics podcast, workplaces in Silicon Valley are already putting more emphasis on work-life balance. Goldin believes this idea will start to spread to other industries as workers value it more.

More flexibility could be a big help to parents –— fathers as well as mothers. Although comparably few families have stay-at-home dads, married fathers are spending more time on child care these days than they did in the past. Flexible hours would make it easier for fathers to play a bigger role in bringing up their kids without fearing that their income will take a big hit as a result.

3. More Child Care Options

There will always be some professions in which it isn’t possible for employees to work in teams and trade off clients. In those fields, women will only earn the same wages as men if they’re able to work the same hours and take less time off. And in order to do that, they need more and better options for child care.

Full-time child care is extremely expensive. According to Care.com, in 2019, keeping an infant in day care cost an average of $215 a week — more than $11,000 per year. And even for school-age kids, families must either pay for after-school care or have one parent — usually Mom — take time off from work.

Making preschool and after-school programs available at a reasonable price would make it much easier for families to get by with two working parents. The government can help by providing child care subsidies for low-income parents, increasing the Child and Dependent Care Tax Credit, and funding early education programs such as Head Start.

Another option, suggested by Goldin in her Freakonomics interview, is to change the structure of the school year. If schools kept the same hours as most workplaces — from 9am to 5pm, year-round — mothers wouldn’t need to take as much time off from work for child care. This is an expensive solution, but it could also help children by improving their learning.

4. Family-Friendly Policies

Getting the government to provide affordable child care options is likely to be a big challenge. Programs like these are expensive, and many taxpayers aren’t willing to pay for them.

However, there’s one thing the government can do at less cost: pass laws to make workplaces more family-friendly. These laws would protect parents who take time off to care for their children from being fired or losing too much income as a result.

Examples of family-friendly policies include:

Paid Sick Days

The United States is one of the few high-income countries in the world that doesn’t require businesses to provide paid sick leave for their employees. Workers who take a day off because of illness or to care for a sick child often lose a day’s income and, in some cases, even lose their jobs.

Some states, such as New York, require employers to provide paid sick days for their workers. A few cities also have mandatory paid sick leave. However, there is no such law at the federal level so far. Passing one would make it easier for parents to hold a job and care for their kids at the same time.

Paid Parental Leave

The U.S. is also the only developed country in the world that doesn’t guarantee any amount of paid maternity leave. The Family and Medical Leave Act requires employers with more than 50 workers to grant parents up to 12 weeks off from work to care for a newborn baby, but the leave can be unpaid.

The FAMILY Act, introduced in 2021, would amend this law to guarantee workers up to 60 days of partial income when they take time off from work for “qualified caregiving.” This could include pregnancy, childbirth, caring for a newborn, or caring for any family member with a serious health condition.

Preventing Pregnancy Discrimination

The Pregnancy Discrimination Act of 1978 forbids employers to discriminate against workers because they’re pregnant or have recently given birth. In spite of this law, however, nearly 31,000 workers charged their employers with pregnancy discrimination between 2010 and 2015, according to the National Partnership for Women and Families.

The Pregnant Workers Fairness Act would require employers to make “reasonable accommodations” for pregnant workers. Examples include allowing them to sit down during a work shift or carry a water bottle. The bill would also ban retaliation against any worker who requests an accommodation.

Protecting Caregivers

Under current law, employers can’t discriminate against workers because they are caregivers. The U.S. Equal Employment Opportunity Commission explains employers can’t fire or refuse to hire someone because they have kids, might have kids in the future, or have other caregiving responsibilities that don’t prevent them from doing their jobs.

However, some states and cities have laws that provide further protection for caregivers. For instance, according to Status of Women in the States, both Vermont and San Francisco guarantee workers the right to ask for flexible work arrangements. The employer may not be able to grant them, but it must consider requests and not punish workers for asking.

5. More Male Caregivers

Right now, women typically bear the brunt of caring for children or elderly parents. If someone needs to help the kids with their homework, stay home with a sick child, or take Grandma to the doctor’s office, it’s usually Mom who has to do it. That means Mom needs more flexible work hours, which often forces her into a job with lower pay.

One way to reduce this impact on mothers would be to have men step up and take on more of the responsibility for child care. According to a Pew analysis, the share of dads staying home with kids grew modestly from 1989 to 2016, from 4% to 7%. However, data from the Bureau of Labor Statistics (BLS) show that mothers still spend far more time on child care than fathers.

Dividing child care tasks more equally between parents would make it easier for women with young children to keep working. Then they wouldn’t lose several earning years near the start of their working lives, and their lifetime earnings and savings would be more likely to keep pace with men’s.

One policy that could encourage dads to take a bigger role in child care is paid paternity leave. According to a 2019 Mercer survey, 40% of large companies offered this benefit in 2018, up from 25% in 2015. However, based on a 2019 BLS report, parental leave is still only available to 16% of private-sector workers, male and female.

Aside from helping women return to work, paid paternity leave is good for families. Studies show fathers who take paternity leave are less likely to get divorced and more likely to share child care and housework with their spouses. They also have better relationships with their children as they grow up. And the children of parents who receive paid parental leave are more likely to get well-baby checkups and vaccinations and to do better in school, according to the American Action Forum.

Studies suggest paid parental leave can be good for companies that offer it, as well. A 2016 analysis from the Boston Consulting Group (via Consultancy.uk) shows offering paid parental leave helps companies attract talent, retain workers, improve worker morale and productivity, and boost their brand’s reputation.

In the long term, having more men involved in child-rearing could help put an end to the so-called motherhood penalty. Right now, companies penalize women and reward men who have kids, because they assume the mother will be the one to take time off to care for the child. If more dads start taking family time, that assumption will shift.

6. Integrating the Workplace

Changing gender roles in the workplace, as well as the home, can also play a role in closing the gender pay gap. Because at least part of the gap is due to differences in career choices, having more women break into male-dominated fields, and vice versa, will help narrow it.

The IWPR notes that a lot of this “gender integration” was going on during the 1980s and 1990s, the period when the wage gap was narrowing most quickly. After the 1990s, progress toward gender integration slowed, as did progress toward closing the pay gap.

There are several ways to promote gender integration in the workplace. The IWPR suggests “better training and career counseling” is one important factor. Career counselors can encourage more women to go into fields that are now seen as “men’s work,” such as auto repair, and job training can help prepare them to succeed in these fields.

Another part of the picture is attracting more men to female-dominated, or “pink-collar,” fields. Examples include education, child care, and nursing. As it happens, these are also some of the fastest-growing fields in the country.

As a 2017 New York Times article notes, men often shy away from these jobs — both because they’re seen as low-status “women’s work” and because they pay less than the blue-collar jobs they’re used to. However, these fields offer better job security and more potential for long-term wage growth than many blue-collar jobs.

The article goes on to discuss ways of luring more men to these fields. These include technical training, especially for men without college degrees, and efforts to rebrand the jobs as more manly. As more men go into these fields, the perception of them as “women’s work” will start to fade, making these jobs seem like normal options for men.

Although gender integration could help narrow the pay gap, it’s unlikely to eliminate it. As the AAUW report notes, women in male-dominated fields like computer programming may earn more than those in female-dominated fields, but they still earn less than their male colleagues.

7. Raising the Minimum Wage

Women, especially women of color, are much more likely than men to work in low-wage jobs. Thus, one way to increase the earnings of women as a group is to raise the federal minimum wage. This would also help boost income for families that rely on a mother’s earnings, reduce poverty, and narrow the wage gap between white workers and people of color.

The Raise the Wage Act, introduced in Congress in January 2021, would raise the minimum wage gradually over a five-year period until it reached $15 an hour. After that, the minimum wage would be tied to inflation. The bill would also increase the base wage for tipped workers, which has been stuck at $2.13 per hour since 1991, to $4.95 per hour immediately and then gradually up to $15.

In some states, the minimum wage is already higher than the federal minimum of $7.25 per hour. Interestingly, the states with the highest minimum wages — including California, New York, and the District of Columbia — are among those with the smallest wage gaps, as shown on an AAUW map.

However, there are some notable exceptions to this rule. For instance, in Washington state, the minimum wage is $13.69 per hour and the gender wage gap is larger than average. This suggests that, although raising the minimum wage could help narrow the gender wage gap, it won’t be enough to close it.

8. Stronger Labor Unions

A 2018 IWPR report found that women who belong to a labor union earn roughly $219, or 30%, more per week than nonunion women. This gain is particularly great for women of color. Hispanic women, who have the lowest earnings overall, gain an average of $264 per week by belonging to a union — a 47% increase.

In addition to their higher earnings, female union members are more likely to have access to benefits, such as health insurance. Only about 51% of nonunion women receive health insurance from their employers. For women in unions, that figure rises to 77%.

The IWPR argues the government could improve women’s earnings by protecting workers’ rights to unionize. Currently, more than half of U.S. states have “right to work” laws that make it illegal for any employer to hire only union members. Changing these laws would strengthen unions and help women find unionized jobs with better wages and benefits.


Final Word

Fixing the gender pay gap will take much more than ensuring equal pay for equal work. It will require far-reaching changes to society as a whole. Closing the gap will mean changing either the structure of the workplace, the way we pay for child care, our views about gender roles — or all of the above.

These changes will be difficult, but they’re worth working for. They have the potential to raise whole families out of poverty and strengthen our entire economy. In the process, they could give both men and women more choices about careers, the hours they work, and the ways they balance their work and family lives. That’s a clear win for both sexes.

In the meantime, individual women can do their best to fight the pay gap on their own. They can learn skills for negotiating salary and benefits to improve their chances of getting a raise when they ask for it. They can join unions, if they exist, to take advantage of collective bargaining. And they can petition employers and the government for changes to end the wage gap for good.

Amy Livingston
Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

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