COUNCIL OF ECONOMIC ADVISERS ISSUE BRIEF APRIL 2015 GENDER PAY GAP: RECENT TRENDS AND EXPLANATIONS April 14 marks Equal Pay Day, the day that represents how far into 2015 the average American woman has to work, in addition to her work in 2014, in order to earn what the average man did in 2014. In recognition of Equal Pay Day, it’s instructive to take a step back and examine what we know about the pay gap. The Pay Gap The Compensation Gap Over the past century, American women have made The pay gap goes beyond wages and is even greater tremendous strides in increasing their labor market when we look at workers’ full compensation packages. experience and their skills. Today, women account for 47 Compensation includes not just wages, but also percent of the labor force and they hold 49.3 percent of employer-sponsored health and retirement benefits, jobs (women are more likely to hold two or more jobs training opportunities, flexible work arrangements, and and they are less likely to be self-employed). Women’s paid family and sick leave. share of the labor force has been rising for more than 50 years and is continuing to increase. Today more Women are less likely to have an offer of health households than ever have a woman as the primary or insurance from their employer. Overall, women are also equal breadwinner in the household. less likely to have retirement savings plans, however this gender gap is concentrated among lower income On Equal Pay Day, however, we focus on a stubborn and women. Prime-age women with college degrees are troubling fact: Despite women’s gains a large gender pay about as likely as their male counterparts to be covered gap still exists. In 2013, the median woman working full- by their employer’s pension plan, while less-educated time all year earned 78 percent of what the median man women are less likely to have an employer-based working full-time all year earned. Phrased differently, retirement plan. she earned 78 cents for every dollar he did. Although this gap generally narrowed between the 1970s and 1990s, it Percent of Individuals With a Pension Plan, 2013 has largely stopped narrowing and has remained Percent between 76 and 78 cents since 2001. 70 60 Gender Pay Gap Among Full-Time, Year-Round Workers Men Women Percent 50 90 40 30 80 20 10 70 0 Less Than High High school Some College College 60 School Source: Survey of Consumer Finances; CEA calculations. 50 Being offered a retirement plan is only the first step in 1960 1970 1980 1990 2000 2010 retirement savings. The next step is accumulating Source: Bureau of Labor Statistics, Current Population Survey. Note :Earnings are based on median earnings for full-time, year-round workers. retirement savings and even among those with a retirement account, women tend to have lower balances than men, which is partially driven by the pay gap. on a number of dimensions. Let’s break it apart so we can Median Female IRA Balance As A Fraction of better understand what is driving the pay gap. Percent Median Male IRA Balance 5 0 The Gap from Education and Experience -5 -10 Both education and experience shape what economists -15 call “human capital” – the skills and qualifications -20 -25 learned either through education or on the job that make -30 workers productive employees. In the past, men had -35 greater levels of both education and experience than -40 women, but this has radically changed since the 1970s. -45 <25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70+ Age While men were more likely to graduate from college in Source: EBRI IRA database the 1960s and 1970s, in recent decades women have responded with greater force than men to the rising Women are also slightly less likely than men to have demand for education. Since the 1990s, the majority of access to paid leave and, perhaps as a result, are slightly all undergraduate and graduate degrees have gone to more likely to take leave without pay. The gap in paid women. If these trends continue, women will represent leave is particularly large among workers without a a growing majority of our skilled workforce in the years college education: among these workers, 52 percent of ahead. These gains in educational attainment are men, but only 44 percent of women, have access to paid particularly important for women’s future earnings and leave. employment. The wage difference between workers with a college and high school education has grown since Access to Leave and Flexible Work Arrangements the 1980s, and today, college graduates earn more than Percent twice what high school graduates earn. And by some 80 estimates, in just five years, two-thirds of all job openings Male 70 Female will require at least some college education. 60 Share of Post-Secondary Degrees Received by Women 50 Percent 70 40 60 30 Bachelor's 50 20 40 Master's 10 0 30 Any Paid Leave Any unpaid leave Any flexibility Doctor's Source: American Time Use Survey, CEA calculations. 20 These broader measures of compensation show that the 10 pay gap is not just about differences in earnings or 0 wages: on numerous dimensions – in access to 1970 1980 1990 2000 2010 Source: Department of Education, Integrated Post-Secondary Education Data System. employer-provided health insurance or pensions and Note: Dashed line indicates 50 percent. paid leave, women’s compensation falls short of men’s. On-the-job experience is also an important determinant But why do women earn less than men? Some people of wages, and in the past, women typically left the labor point to women’s choices, some people point to force after marrying or having children. Today, even discrimination, and some people point to differences in though women are still more likely than men to men and women’s experience and education. There is no temporarily exit the labor force, compared to previous single answer, which is why we need to make progress decades, they are more likely to work throughout their 2 lifetimes. For example, economists Francine Blau and Female Share vs. Average Earnings by Industry Lawrence Kahn found that one-third of the decline in the Female Share of Employees, 2014 pay gap over the 1980s was due to women’s relative 90 Financial Education and 80 Activities gains in experience. Today, even the majority of mothers Health Services 70 with an infant are in the labor force. Leisure and Other 60 Hospitality 50 Services Professional and Much of the decline in the pay gap that occurred in Business Services 40 Retail Trade recent decades has been because women have closed Wholesale InformationServices 30 Transportation Trade education and experience gaps. In fact, since women and 20 have increasingly become our most skilled workers, after Warehousing Manufacturing Utilities 10 accounting for education, even more of the pay gap is Construction Mining and Logging unexplained. In fact, once we hold differences in men’s 0 $300 $500 $700 $900 $1100 $1300 $1500 $1700 and women’s education constant, the pay gap actually Average Weekly Earnings, March 2015 widens today; 20 years ago taking account of differences Source: Current Employment Statistics, CEA calculations in education narrowed our estimates of the pay gap. The gender pay gap tends to rise with education, with the Even when women and men are working side-by-side smallest differences between the earnings of men and performing similar tasks, however, the pay gap does not women with less education and the biggest gaps among fully disappear. Blau and Kahn decomposed the pay gap those with advanced degrees. The pay gap among and concluded that differences in occupation and women and men with professional degrees is currently industry explain about 49 percent of the wage gap, but about 67 cents. 41 percent of the wage gap is not explained by differences in educational attainment, experience, The Gap from Occupation and Industry demographic characteristics, job type, or union status, using the Panel Survey of Income Dynamics. Using a As women’s labor market participation and education similar approach, but newer data from the Current increased, so did their career opportunities. Women Population Survey, the Council of Economic Advisers have made tremendous progress in entering occupations finds that industry and occupation can explain about 20 that were once heavily male-dominated, part of what percent of the wage gap, but about two-thirds of the gap Claudia Goldin has termed the “quiet revolution.” is not explained by potential experience, age, race, education, industry, or occupation. Although occupational segregation has fallen, women are still more likely to work in lower-paying occupations The real question, though, is why men and women end and industries. Women remain underrepresented in the up in different occupations in the first place. It’s not clear three industries with the highest average wages: whether we should account for differences in industry information services, mining and logging, and utilities, and occupation in wage gap decompositions. If these but represent more than half of employees in the three differences stem from preferences, it is reasonable to industries with the lowest average wages: leisure and account for them. On the other hand, if men and women hospitality, retail trade, and other services. choose different jobs because of discrimination, industry and occupation should not be included. In many situations, the line between discrimination and preference is ambiguous. Take the example of computer science, where the share of women is lower today than it was in 1985.