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posted on 19 March 2017

Identifying The Roots Of The Gender Pay Gap

from the St Louis Fed

While declining substantially since the 1960s, a gap still exists between what men earn and what women earn. An article in The Regional Economist examines the issues surrounding this gender pay gap.

To understand this disparity, Research Fellow Limor Golan and former Technical Research Associate Andrés Hincapié studied the evolution of the wage gap between women and men belonging to certain age groups. One age group was composed of white workers born between 1941 and 1950, while another group comprised those born between 1951 and 1960.1

Golan and Hincapié measured the ratio of women’s median wage divided by men’s median wage at different ages, starting at 20 and ending at 40. When the ratio increases, the gender pay gap is shrinking; when the ratio falls, the gap is increasing. (To see the charts for these groups, go to The Regional Economist article “Breaking Down the Gender Wage Gap by Age and by Hours Worked.")

Rising Pay Gap

For both age groups, the gap generally increased as workers aged.

“This fact is well-known, and one of the main reasons for this pattern is that men and women make different choices over the life cycle," Golan and Hincapié wrote. “As they get older, women are more likely than men to work fewer hours outside the home and have breaks in their labor force participation (yielding less accumulated experience and possibly fewer labor market skills) and are less likely to hold highly compensated jobs with promotion prospects."

Narrowing Pay Gap

Golan and Hincapié then looked at the same age groups (also called cohorts), but only examined the pay gap for those who worked full time continuously.

“It is clear that the gender wage gap is smaller for those who worked full time continuously than for all workers in general. This is true for all cohorts," they wrote.

For those born between 1951 and 1960, however, the direction of the trend was different for workers as they got older.

“The pay gap for those working full time continuously is not only smaller but decreases with age for the most part. This latter fact is in contrast to what is seen in the full sample," the authors wrote.

Why does this pattern look so different? After eliminating a couple other possible explanations, Golan and Hincapié examined whether the wage gap reflects discrimination, and discrimination of women who continuously work full time declines over time.

The Roots of Wage Discrimination

The authors noted that firms often have costs of hiring and training employees, so they’re likely to seek workers who are less likely to leave the labor force or to reduce their hours substantially.

“While some women are more inclined to participate in the labor market and work full time, women in general are still more likely to reduce hours or leave the labor force, especially during childbearing years, relative to what men are likely to do," Golan and Hincapié explained. “This can lead to lower wages for equally qualified women."

The bias by employers may even hurt women who are likely to work long hours and are attached to the labor market as much as men.

“This type of discrimination is often called statistical discrimination because group affiliation and group averages adversely affect individuals in the group," they noted.

So why does the impact of this discrimination become smaller as the women in this demographic group get older?

“Over time, employers can typically observe work experience, whether individuals were working and whether they were working full time or part time. Therefore, employers can increasingly identify workers who are less attached to the labor market and, as a result, discrimination of the type described above goes down with age," they wrote. “Since this type of discrimination is more likely to be directed at women, the wages of women who work full time continuously may grow relative to the wages of men due to a decline in discrimination."

Notes and References

1 The authors only looked at wages of white women compared to those of white men because there are other issues regarding pay gaps for nonwhite workers.

Additional Resources

Source

https://www.stlouisfed.org/on-the-economy/2017/march/identifying-roots-gender-pay-gap

Disclaimer

Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

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