How to End the Gender Pay Gap Once and for All

A Harvard economist makes the case that greater autonomy and work flexibility would bring us closer to equal pay
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When it comes the gender pay gap there is (a) one famous statistic that everybody knows; (b) a couple famous rebuttals to that statistic; and (c) one big unanswered question about equal pay for men and women.

The statistic is that a woman earns $0.77 for every $1 earned by a man. The 77-cent talking point is everywhere, and too often the conversation ends with the double-sevens.

The rebuttals matter. The 77-cent stat doesn't account for the fact that women choose different jobs than men (often in lower-paid occupations and industries). It doesn't account for the fact that many women choose to work part-time,* or choose to leave the workforce for extended periods of time, which means they have less work experience by the time they turn 40 or 50.

But even when you equalize for all these variables, a pay gap of about 9 percent persists between men and women, and it's particularly cavernous at the top end of the income scale. Why?

It could be rampant discrimination against women, or against mothers, in particular. It could be that women are less likely to push for a promotion. It could be that they're less aggressive about moving up the corporate ladder for fear that they won't be able to fulfill the work demands of a bigger job once they have a family. (This is one reason why equal-pay advocates support more paternity leave, which would put men and women on an equal plane with respect to time off after the baby.)

Harvard economist Claudia Goldin has an idea that doesn't rely on government, or bolder women, or more men doing diapers (although all that could help, she says). Instead, she suggests the most important factor in gender inequality is for companies to see the benefits of work flexibility.

"The gender gap in pay would be considerably reduced and might even vanish if firms did not have an incentive to disproportionately reward individuals who worked long hours and who worked particular hours," she writes in a new study.

It's About Time

The gender pay gap sounds simple when you reduce it to a 77-cent (or 91-cent) soundbite. The reality is more dynamic. In many industries, men and women enter the workforce earning equal wages. But as they enter their 30s and 40s, men open up a big lead.

This graph of the gender-wage gap, from Goldin's paper, tells two clear stories. First, the wage gap is closing with each new generation (each individually colored line represents a new cohort). Second, the pay gap starts small and grows quickly (i.e.: the colored lines fall) into one's 40s and 50s. The x-axis here is age; the y-axis is log ratio of female/male earnings.

What does this graph tell us? It tells us the gender gap isn't just about gender. It's also about time—time since entering the workforce and time spent working.

In winner-take-all jobs (e.g.: a CEO, law partner, or a tenured professor), contenders are rewarded for working longer hours, Goldin writes. It's as if, for the most coveted and high-paying jobs, hours in the office acts as a kind of tie-breaker between similarly talented and deserving candidates for top spots. And it's a tie-breaker that often goes to the guys because many women take time off to be moms.

Among female Harvard students graduating around 1990, taking off 18-months in their first 15 years was associated a penalty of 41% of earnings for eventual MBAs, 29% for lawyers, and 15% for doctors. In other words, corporations and law firms punish women who take time off much more than the health industry.

The penalty is steepest in corporate America. The gender pay gap for MBAs graduating from the University of Chicago Booth School between 1990 an 2006 starts off around zero. But after 16 years women earn just 55 percent what men do. As Goldin writes, this penalty is basically all about children, and wives of high-earning husbands are particularly willing to cut back their hours for just that reason. 

Women with children work 24 percent fewer hours per week than men or than women without children. The impact of children on female labor supply differs strongly by spousal income. MBA moms with high-earning spouses have labor force rates that are 18.5 percentage points lower than those with lesser-earnings spouses. They work 19 percent fewer hours per week (when working) than those with spouses below the high-income level.

Goldin contrasts the corporate/legal fast-track to pharmacists, who do not appear to suffer any part-time penalty. Pharmacy is the the eighth highest-earning occupation for men and third-highest for women. But hours are compensated in a "linear" fashion, where men aren't rewarded for more hours worked by being paid more per hour.

A Gap That Won't Go Away

Goldin suggests companies give workers more autonomy, encourage more flexibility in work schedules, to find ways to substitute for workers on irregular schedules, and to reward work no matter when it is worked, since these sort of companies tend to have the smallest gender gaps (and also, theoretically, keep the most talented women). Work flexibility is a tremendous idea. It could not only close the pay gap at some companies that put too much stock in 9-to-5 face-time but also allow for more telecommuting, which would help the environment and make entire regions more productive by reducing traffic times.

But, two caveats.

First, companies that honor flexibility can still be sexist. A recent study in the Journal of Social Issues found that ambitious men are more likely to be granted flextime than women, because managers assume women asking for work flexibility are trying to transition out of the job and start a family. A broader acceptance of work flexibility might mitigate this sort of behavior, but it's worth pointing out that embracing flextime doesn't mean rejecting sexism.

Second, for the very most prestigious jobs, exceptionally talented workers who put in the most time should be rewarded. Not every industry is as substitutable as a pharmacy. Managers, lawyers, and corporate executives are compensated handsomely for the fact that they have to be on the clock around the clock, and it's perfectly reasonable to say: "I have five great candidates for this manager role and one of them [male or female] works 10 percent more than the others, so I'll pick [him/her] and pay significantly more for this elevated position." This is where paternal leave could play a larger role. If new mothers pulling themselves out of the workforce are a key reason for the gender pay gap, we need a cultural and corporate acceptance of men also excusing themselves from work, too. 

______

*Update: The 77-cent stat is for full-time, year-round workers. The 9-percent gap that remains after corrections is for MBAs and JDs, not for everyone.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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