Why does the gender pay gap persist? A Nobel Prize winning answer

Blog posts

31 Oct 2023

Meenakshi Krishnan, Principal Research Fellow

When the Nobel Prize for Economic Sciences was announced earlier this month, I was excited for two reasons. First, it made Claudia Goldin, Professor of Economics at Harvard University, the first woman to win the Prize solo (without sharing it with men as the previous two female recipients had done). And second, Goldin won the Prize for her extensive work in understanding and explaining the gender pay gap.

The needle in achieving gender pay parity has not moved much, despite decades of investment in education of girls, greater entry of women into the workforce, and gender diversity policies in the workplace. Global research shows an overall gender pay gap of 11% in frontline, operational roles and a whopping 38% for women in senior and leadership roles. Latest ONS data for the UK shows that much larger differences in gender pay gaps prevail among high income earners and employees aged over 40 years.

What then is Goldin’s explanation for this stubborn gender inequity, especially for higher income earners? Tracking one hundred years of economic data on demand and supply side factors of the labour market in the USA, Goldin finds that college educated women continue to earn 82 cents to the dollar compared to men. This cannot be simply pinned down to sexism or gender bias on the part of men, or lack of negotiation skills or aspirations on the part of women. Rather, she identifies the structure of work, especially “greedy work”, as explaining why women’s earnings lag behind men’s. Goldin argues that employers value and remunerate employees who are willing to put in long (and uninterrupted) hours into their jobs. This means flexible working and career interruptions result in lower earnings particularly in the corporate, financial, and legal sectors.

The gendered nature of care

According to Goldin, parenthood and the arrival of the first child invariably results in mothers taking a career break. Employers perceive mothers to be less committed and engaged in their jobs due to competing family responsibilities. This results in what is called the motherhood wage penalty, where mothers earn lower benefits and pay compared to childfree women. Fathers, on the other hand, receive greater bonuses in pay and perceived competence on the expectation of greater commitment to their jobs due to having a family to support. This is known as the fatherhood wage premium. The parenthood effect results in reinforcing male breadwinner and female caregiver stereotypes, wedging apart the gender pay gap. Women with young children tend to opt for part-time flexible work or drop out of the workforce entirely, while men with young children become more active in the labour market. This advantages men who can work long hours in high-pressure, high paying jobs.

Copyright: Johan Jarnestad, The Royal Swedish Academy of Sciences (free to use for non-commercial purposes)

Shouldn’t both partners opt for equally sharing childcare through part-time work? Goldin ironically observes that a 50-50 couple “might be happier, but they would be leaving money on the table”. Her solution is to call for changes in the structure of jobs and labour markets. Goldin suggests that promoting temporal flexibility in jobs, that is flexibility in the number of hours worked per day, the particular timings worked, and the location where jobs are performed, has the potential to disincentivise employers from rewarding long working hours. However, this is not easily done in jobs where workers are not readily substitutable such as managers, directors, and senior staff.

Neither does Goldin’s solution address the gender segregation in occupations resulting from gender norms. Care is seen overwhelmingly as ‘woman’s work’ not only within the home, but also within care professions. Women are overrepresented among paid care sectors such as healthcare, childcare, education, and personal care. Goldin’s recommendations, unfortunately, focus exclusively on the demand side of the labour market, letting governments, employers and men off the hook from doing more towards shifting gender imbalances in care work. Only by correcting care inequities in the home can we hope to tackle pay inequities in the workplace.

Correcting the imbalance

Achieving gender pay parity is not an impossible goal. IES research with the FDM group, a global professional services provider in the information technology sector, found a 0% median gender pay gap, while the case study on Lewisham Council found a “negative pay gap” where women earn more than men. In both cases, our research identified a multi-pronged approach to be most effective. It underscored the importance of leadership commitment and example-setting by senior leaders, investing in ‘growing your own talent’ and a ‘promote-from-within’ talent strategy, appropriate diversity policies, a culture of open communication, and effective HR monitoring and measurement. Thus, gender pay gap reporting and pay transparency legislation are a crucial first step and have helped draw attention to the problem. But employers need to do more to understand the causes behind these gaps and design effective solutions.

One area to focus on is recognising the deeply gendered nature of care and its close interlinkage with workplace choices of men and women. If female workers are to be supported in reconciling motherhood or dependent care work with paid work, so too must male workers. Employers can ask the following questions to identify imbalances in care that could be driving their gender pay gaps:

• What is the uptake of paternity and shared parental leave policies by men in the organisation?
• Are there cultural barriers, social stigma, or unconscious bias toward fathers who opt for childcare leave?
• Are there flexible working policies in place for all workers with care responsibilities?
• Is there stigma or bias against workers opting for flexible working due to care responsibilities?
• Is there an implicit ‘motherhood penalty’ in terms of pay and progression for women with children?
• Are women with care responsibilities adequately represented in middle and senior management roles?
• Are there well-designed gender diversity policies that promote fairness in recruitment and talent progression for workers with care responsibilities?
• Are senior managers leading by example in valuing care and monitoring the careers and internal progression of workers with care responsibilities?

If gender pay parity is a high priority for company boards and senior leadership, then ensuring care equity between genders is an important strategy for achieving pay equity.

Read more on our latest research in Fair, equitable pay: impossible ideal or a HR priority we finally need to practise? For additional evidence and case studies, visit the IES gender pay resource hub. And to learn more about what you can do to support gender diversity and pay equity in your organization, join our HR Network.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.