With lowest unemployment rate and getting close to shortage of labor, wage gap between men and women still remain. We discuss reasons behind the gender income gap and some remedies to consider to close the gap.
· About the data and chart: Chart above shows median income by education attainment and by gender. The data lags a bit so the latest data is as of 2017. However, KC CRE Advisors have estimates for 2018 and forecast stretched to 2023.
· Summary Analysis:
Ø The gender income gap is still faced by American women despite the Equal Pay Act passed over half a century ago. Most recent data show that women are getting paid about 70% of annual median income of men for the same college degree. Even for the highly educated group, women tend to earn substantially lower than men in totality. Women’s earning share compared to men for highly educated group moved down during 2008 financial crisis and did not fully recover until 2014 with an exception at 2011 (Chart Below). In dollar terms, women are getting paid about $16,600 lower than men with same degree, annually. Earning share of women over men is slowly increasing over time albeit with constant fluctuation.
Ø Reasons for the pay disparity may range from outright discrimination and lack of negotiating skills to quality differences in educational attainment. While there still is a fraction of Traditional Economic System left in the America’s mixed economic system, over the decades, we have moved away from it. However, reminiscent of it still exists to make a difference. Comparatively, lesser assertive behavior among female population do tend to hurt them during the income negotiations.
Ø Other reasons:
1. Average annual pay gap for women with Associate, High School and less than High School degree average about $11,600 compared to men. Besides two known and popular reasons, the difference in pay could be explained by type of jobs that men vs. women take with lower education and skill. The type of jobs that men take with lower education and skill tend to be in the construction or oil and gas industries, where pay tend to be higher. Whereas, women tend to dominate retail and leisure and hospitality industries, where pay tend to be lower than construction or oil and gas industries.
2. The field of study or major that men and women graduate may also contribute towards disparity. Men tend to focus on STEM degrees more than women. This is especially true looking at the history. And as we know, the STEM professions tend to pay more than other majors or degrees or professions. The number of females graduating with STEM degrees are increasing but men still dominate the field, giving them comparative edge in income over women.
· About the data and Chart: Chart above shows % share of male and female high school graduates enrolled in college. Those not enrolled assumed to enter the labor market.
· Summary Analysis:
Ø Many factors come into play before joining college: reputation of college, free-money, jobs and party atmosphere. Since the mid-1970s, female outnumbered male counterparts and they have stayed like that since. With the feminist movement of 196os, women began to enter the labor market and start to gain education and skills in greater numbers. Also, WWII played a vital role for them to enter the labor market since male soldiers were away but we can only see clear participation in labor market and college starting mid-1970s.
Ø After an immediate increase in % share of female enrollment, though the labor force participation rate saw an increase, wage growth did not see a similar growth rate. During that time and continuing through recently, traditional economy wearing off but still dominant, female degrees and occupation mainly focused on lower base wage. These degrees and occupation also provide very little wage growth. Habit of paying lower wages to female work force continued no matter what degree, education or experience of female workers.
Ø During good economic times, males tend to join the labor force in greater number after high school than females. This is understandable since the wage level they gain are high enough and opportunity cost of entering the labor market outweighs college enrollment for the male high school graduates.
Ø For hiring managers and human resource professionals, we expect an increase in female labor force participation rate as suggested by college enrollment and graduation rate. We know there is a temptation to pay lower than market rate for female but with increasing level of pay transparency and higher scrutiny in wage gap, we expect things to change a bit. With a tightening labor market situation, companies that pay attention towards gender equity in pay would be more successful in gaining popular support than others.
· About the Charts: The chart above shows forecast unemployment and participation rates by gender. The five year forecast is compared to the history for both the variables. Asians are not shown on the chart above as they top the chart, meaning lower unemployment rate and higher labor participation rate because the demographic group tends to be highly educated and focus on occupation that is high in demand.
· Summary Analysis:
Ø Don’t be fooled by the White men and women being on the top of the chart with lower drop in employment rate compared to history since the group’s unemployment rate is already VERY low. Black unemployment is expected to see the highest drop during the forecast period since it is highest compared to other demographic groups.
Ø Labor force participation rate is expected to follow the similar trend during the forecast period as seen during history. As we mentioned, labor force participation rate takes a long-time to change since structural changes in the labor market take a long time to occur.
Ø Distribution of participation and unemployment rate among different races of women does not show similar trend as Blacks and Hispanic women, though showing improvements, are still way below White women. So, realistically speaking, we expect the lagging groups to catch up to their counterparts first before overall gender catching up to men.
Ø If we focus solely on discrimination as a major factor, then there is enough proof that race is a bigger factor than gender in the U.S. labor market. But we believe that other factors like education and skills also play a vital role within a racial breakdown as well.
Ø We expect the pay disparity among race and gender to continue for the foreseeable future. Some reports point to year 2060 before we will see gap closing in a meaningful way. Main reason for this is the fact that structural changes does not happen overnight. There are deeply engraved societal factors in play, where changes take a long time to occur despite progressive laws and regulations.
Ø Data and analysis above only capture parts of the reasons for disparity between the differences in wages between genders. We cannot keep a blind eye on social and traditional factors.
1. Social and Traditional Factors: Though the U.S. is the leading capitalism economy of the world, traditionalism is still dominant in the society as a whole. Men are still seen as a major bread winner of the family and women as a home-maker. That’s why when family breaks (divorce), over 90% of the time, kids are rewarded to women. Women are, understandably, seen as a primary care-giver with stronger bond with kids. This does not go unscaped from the employer’s point of view. So, they expect multiple break in employment for women during the life cycle of their employment. And during their employment, women’s priority is expected by employer to be family and kid. Further, multiple break in employment (family and kids) and shifted priorities of women, at times, are over taken by technology or vigorous demand for the job when they return. Some women take an extended break to build a family, which is then sure to escape their talent and job requirement.
2. This break in employment is very real and somewhat plays a hurdle for the women’s base wage and growth.
Ø Though the pay disparity or gap is expected to stay, there are ways we could speed up the closing of this gap:
1. Stricter enforcement of current labor laws surrounding discrimination: Though there is a temptation to add additional labor laws and regulations, we believe what we need is stricter enforcement of current laws.
2. Companies MUST start paying attention to their culture: As we know, upcoming pipeline of labor force is dominated by female. There is a larger opportunity cost for companies to pay if they don’t correct the problem if it exists in their company.
3. Women need to better negotiate: This goes to both genders but more true with female population. Laborers must know their worth based on degree, experience, level of work and location. Also, keep track of the labor market conditions in your field and area, so negotiating is easier. For example: With current low unemployment rate and rise in wages for almost all professions, don’t settle for less. Make a move to elsewhere if you have to.
4. Continue to focus on “high demand” degrees and occupation: Though it is changing and women are graduating more with STEM degrees than previously, this trend must continue.
5. Finally, communicate life style changes (kids) and work responsibilities clearly to your direct manager and colleagues. Often times when women have family of their own, management automatically assumes that women’s priorities change from work to family. This is not always true but need proper communication.
I would like to thank Dr. Narishwar Ghimire for contributing and editing this blog. Dr. Ghimire is an experienced econometrician and predictive analyst with proven track records of building, monitoring, and validating advanced strategic decision making, pricing, loss forecasting, mortgage, credit risk, and interest rate/macroeconomic forecasting models in a financial industry for various purpose. He will be contributing more on every of our product, which is a great news for our clients and the industry.