Olivia W. and Margaret PesikovProfessor KimLabor EconomicsDecember 6, 2011

The Gender Wage Gap

Introduction

In the United States of America, as well as in many other countries, there is a significant

difference between female and male wages for similar jobs and careers. This situation is known

as a gender wage gap, which is an index described as a percentage that depicts how much women

earn in comparison to men. This wage gap index is also frequently used to evaluate the

difference in wages between various races, geographic locations, and cultures. The index is

typically shown in dollar amounts and is calculated by dividing median annual earnings for

women by median annual earnings for men (Baldwin). For example, a wage gap may be

described as women earning a certain amount of each dollar that a man earns. This paper will

focus on evaluating the disparity between male and female pay and salaries.

The concept of comparable worth states that jobs which require similar abilities,

knowledge, and skills should be compensated the same wage or salary rate regardless of the

employee’s age, race, sex, or any other difference. All companies are aware of this issue,

however, it appears that there is still a pay difference between men and women.

Throughout history, it has been common for women to earn significantly less than men

for similar jobs. There are various views of the reasons for this reoccurring phenomena including

blatant discrimination, fewer women having professional degrees than men, women’s

discontinuous commitment to the labor market, and many others. In an attempt to correct the

inconsistency in wages, several acts and laws have been passed by the government to help

control the reoccurring inequity. These acts include the Equal Pay Act of 1963 and Title VII of

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the Civil Rights Act. Although there have been improvements in the gender wage gap, it appears

that women are still being paid less than men in equivalent jobs, even in the present day.

The purpose of this paper is to locate the main factors causing the gender wage gap.

Although there are many different views and beliefs as to why the gender wage gap exists, this

papers focus to locate the specific causes. After locating the causes, this paper will make

suggestions on how to decrease the gender wage gap to make women more equal in the

workforce. To this day, there are many inequalities that must be fixed in the United States, as

well as other countries.

Contributing Factors

Legislation

Several laws have been passed in the United States to address the issue of discrimination

in the workplace, including the Equal Pay Act of 1963 and Title VII of the Civil Rights Act.

These acts strive to minimize the gap between female and male salaries, and to reinforce to

companies that discriminatory practices are unethical, unacceptable, and may result in legal

actions against the company.

The Equal Pay Act of 1963 (EPA) states that men and women who hold equal jobs in

similar work environments should be paid the same for equal work. There are many different

forms of pay: salary, bonus plans, benefits, profit sharing, life insurance, overtime pay, stock

options, life insurance, vacation and holiday pay, reimbursement, cleaning and gasoline

allowances, and hotel accommodations. The EPA makes it illegal to discriminate against women

by such acts as offering them lower wages or benefits than males in an equal position.

Nevertheless, these practices still occur within some organizations, whether they are intentional

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or not. If these discriminatory practices are identified, the company may face lawsuits and a

tarnished reputation (“Equal Pay and Compensation Discrimination”).

Title VII of the Civil Rights Act proclaims that discrimination in the workplace is illegal

with reasons including race, religion, gender, and disability. This act is directed toward company

hiring and firing policies, as well as fair practices regarding wages for men and women.

In 2009, President Barack Obama signed his first legislation targeting the United States’

gender wage gap by reinforced that men and women should be paid in an equitable manner

(“Equal Pay and the Gender Gap: Men Still Outearn Women – TIME”). The law that President

Obama signed was the Lilly Ledbetter Fair Pay Restoration Act, named after a women who

suffered from wage discrimination at her place of work.

This act’s focus is to change the current United States laws so that it is easier for

individuals to sue companies for pay discrimination. President Obama is quoted saying,

“making our economy work means making sure it works for everyone”

(“President Obama’s First Law - ABC News”). President Obama continued by saying, “It is

fitting that with the very first bill I sign, we are upholding one of this nation’s first principles:

that we are all created equal and each deserve a chance to pursue our own version of happiness”

(“President Obama’s First Law - ABC News”). This proves that to this day there is

discrimination in the workplace and the government is struggling to fix this.

New laws are passed continually to combat these wage discrepancies and give

women more equality in the workplace.

Oaxaca Decomposition

In order to measure discrimination in pay, economists use a method called the Oaxaca

Decomposition to determine discrimination rates. The Oaxaca Decomposition was created by

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Ronald L. Oaxaca, an economics professor at the University of Arizona. The Oaxaca

Decomposition is used around the world because it is considered an effective method of

measurement. This calculation takes into consideration all factors that can contribute to the vast

differences in pay rates between males and females. These factors include skills, attitudes,

education, time in the labor force, and other varying factors that may affect one’s pay. It may

also be used to determine discrimination rates for other groups including different races, as well

as inequalities in health for poor and non-poor people (“Explaining Differences Between Groups:

Oaxaca Decomposition”).

Once all of these factors are accounted for, the remaining unexplained amount of the pay

difference is determined to be resulting from discrimination. Once calculated, this measure is

still uncertain because it may not consider all possible factors that contribute to the wage

differential. All factors considered, economists will have an accurate measure of discrimination.

Professor Joseph Altonji of Yale University came to the conclusion that factors such as

differences in education can only account for approximately 27 percent of the wage gap,

meaning that over 70 percent is most likely attributed to discrimination (Altonji). It is nearly

impossible, however, to accurately determine this because it is impossible to consider all of the

factors that can be involved in the difference due to the bounded rationality of researchers and

personal biases.

Occupational Crowding

    Occupational Crowding involves the concept of a self-fulfilling prophecy. Women’s

perceptions of their roles within society become their reality. The theory of occupational

crowding states that “women are intentionally segregated into particular occupations” (Borjas

401). This is a result of social stereotypes and perceptions of female roles within society. There

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are latent beliefs in society that make people believe that women do not belong in certain career

paths because they are “manly” or “unfeminine”. Especially several decades ago, women were

pushed into more feminine occupations such as caretaker or secretary. To this day, there are

many occupations that tend to employ mostly women. For example, truck drivers are generally

men and secretaries are usually women.

More often than not, these positions pay less than jobs that mostly men hold, resulting in

lower wages for women. Though this seems like there is discrimination taking place, there is not.

Women have the opportunity to go into other careers but often times they choose the socially

accepted and encouraged career. In the modern day, occupational crowding is decreasing

because women are more likely to go into “manly” careers than they would have been years ago.

It is no longer unusual to find a woman engineer or a male nurse because certain social stigmas

are either decreasing or being completely eliminated.

A recent study found that a woman working in an occupation where at least 75 percent of

coworkers are women earns about 14 percent less than a comparable woman working in an

occupation where more than 75 percent of workers are men. The study also reports that a man

working in an occupation that is predominantly female also earns 14 percent less than a man

working in an occupation that is predominantly male. In short, it is the femaleness of the job that

leads to lower wages, regardless of whether the worker employed is a man or woman (Borjas

401).

In addition to choosing jobs that may be generally appealing to women, women may

often choose lower paying jobs. This may be because many lower paying jobs offer flexibility

and women can efficiently manage time for both work and family. Many high paying jobs, such

as surgeons or CEOs, make it difficult to have and take care of a family because of the time

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commitment. A lot of women see this as a set back and would rather work a job that has more

flexibility (“Do the Ambitions of High School Valedictorians Differ by Gender?”).

Salary Negotiation

Studies show that women tend to be less aggressive than men when it comes to

negotiating salaries. Men are more likely to aim high and put a lot of effort into convincing a

potential employer to increase the salary offer. Women, on the other-hand, are believed to be

more likely to settle for an offer without questioning whether or not there is opportunity for an

increase. Similar to men’s willingness to take risk in negotiations, research also depicts that men

are also more willing to work in jobs that are dangerous. Consequently, this results in a larger

salary because of their willingness to put themselves in risky situations (Bruzzese).

Human Capital Depreciation

Another argument for the cause of the gender wage gap in the United States is “the

discontinuity in women’s labor market attachment” (Borjas 398). Many women choose to bear

children and take time off from participating in the labor force in order to raise them. Due to this

discontinuity, women’s skills tend to depreciate over this time period and may account for why

pay may be lowered. Childbirth and childcare contributes to the gender wage gap because

women’s skills depreciate during the time period that they have off for these reasons. “Skills that

are not used or kept up-to-date either are forgotten or become obsolete (Borjas 399). Men,

however, typically stay committed to the labor market and therefore receive a higher payout for

their continuous efforts. Women may not stay at a job long enough to receive a pay increase

while men do.

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Literature Survey

The gender wage gap is a controversial topic. Many views are held about the topic from

different individuals. It is important to research and be aware of people’s views of this topic to

see the factors of the gender wage gap and why it still exists.

Labor Economics, by George Borjas, states that the “discontinuity in women’s labor

market attachment may help explain a substantial part of the wage gap” (Borjas 400). This

implies that women are more likely to quit their jobs than males in order to raise children. This

statistic could be a critical factor in understanding why women earn less than men. One other

fact that has been studied by economists and even psychologists is that women are less likely to

be promoted. This may be caused by intentional or subconscious discrimination and their

superiors believing that they are less capable than men to handle more responsibility. Socially,

men are generally seen to be smarter and more competent than women.

Evan Fransen, Janneke Plantenga, and Jan Dirk Vlasblom, authors of “Why do women

still earn less than men? Decomposing the Dutch gender pay gap, 1996-2006,” have their own

perceptions of the gender wage gap. The authors discuss the improvements in women’s

attachment to the labor market compared to the past. Women in the present day have greater

desires to work than women in the past. The authors analyzed why the gender wage gap still

exists, and they believe that the gap was diminishing but it was being counteracted by changes in

the wage structure. This analysis proved to be false. It appears that most changes to the Dutch

wage structure have been favorable to the women in the labor force. The reason for the

differences in gender wages is because of the Dutch wage structure’s gender bias (Fransen, E.,

Plantenga, J., & Vlasblom, J.).

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Authors Ellen K. Nyhus and Empar Pons had a different perspective where they

considered whether personalities and personality traits are reasons for the gender wage gap in

their article, “Personality and the gender wage gap”. Their research conducted involved looking

at personality traits including personal self efficacy (locus of control) and time performance to

see how they affect the wages of women and men. The Big Five personality traits, consisting of

extraversion, openness to experiences, agreeableness, conscientiousness, and neuroticism are

also evaluated and associated with gender earnings. In their research, the authors found that 11.5

percent of the Dutch gender wage gap could be caused by differences in personality trait scores.

The main characteristics of personality that affected this were agreeableness and intellect. When

considering personality traits as a factor of the gender wage gap, the unexplained section of the

gender wage gap decreased from 75.2 percent to 62.7 percent. Nyhus and Pons research

exemplified that personality traits do play a factor of the gender wage gap (Nyhus, E., & Pons,

E.).

USA Today’s article, “Gender Pay Gap is Smallest on Record”, written by Dennis

Cauchon, states that the reason for the shrinking of the earnings gap between men and women is

because women are flourishing in the current economy while men have been hit hard by the

recession. This article explains that the gap has been decreasing, but for the wrong reasons. Men

are losing their jobs in the construction industry, manufacturing industries, and other similar

industries because of how the recession is affecting those industries. On an opposite side of the

spectrum, government jobs and the health care industry are still growing with low job loss. These

two industries tend to have more female workers than male (Cauchon).

In the article, “Sex Based Differences in School Content and the Male/Female Wage

Gap”, Charles Brown and Mary Corcoran hypothesize that the wage gap may be partially

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accounted for by the differences in courses that males and females choose to take in college.

Their studies have shown that in “in high school boys are more likely than girls to take advanced

math and science courses while girls are more likely to take foreign languages. In college,

women enroll in very different majors than do men” (Brown 1). Women are more likely to take

more cultural classes, including studying foreign languages and social sciences. These courses

tend to not have a large payout in the future, which may cause men to have higher wages because

they often take more rigorous courses.

Some professionals believe that a contributing factor to the gender wage gap is the fact

that consumers are more likely to judge performance of a male employee as better than a female

even when their performances were identical. For example, people tend to rate male doctors

better than their female doctors even though both are equally competent. David R. Hekman, a

management professor at the University of Wisconsin, has studied this and through his and his

teams’ research has determined that customer satisfaction surveys are typically better for men.

He used his findings and published, “An Examination of Whether and How Racial and Gender

Biases Influence Customer Satisfaction”. This is a result of consumer biases and cannot be

prevented through any legislation or from company involvement. Hekman suggests that

company’s take these biases into consideration when determining wages for female workers

(Hekman 240). These biases do not likely play a significant role in the wage discrepancy

between men and women, but researchers such as Hekman believe that they make a difference.

Data and Analysis

The gender wage gap is a quantitative topic, meaning that it depends heavily on statistics

and numerical data. As previously mentioned, the gender wage gap differs depending on

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demographics, such as the state, the laws, and individual mentalities of both employees and

compensation managers. This section will discuss the empirical data of the gender wage gap

throughout the years and the extent to which the wage gap fluctuates based on external factors.

The 2007 United States’ wage gap statistics showed women earning average annual wags

of 78 cents to a dollar earned by males. In 2008, the statistics appeared to show that women’s

earnings dropped by one cent, so that women were earning 77 cents to a male’s dollar (Thomas).

The U.S. Census Bureau is the main source of the gender wage gap statistics. “Money

Income of People- Number by Income Level and by Sex, Race, and Hispanic Origin: 2009”

(Exhibit A) depicts the 2009 gender wage gap. This chart shows the income of males and

females in the United States. By looking at the highest income level listed, $250,000 and above,

there is a large difference between the number of men and women earning that income level.

Males, 1,181,000 of them to be exact, earned $250,000 or above, while only 279,000 female

earned this amount. All incomes, except for the lowest income level ($29,999 and below), have

more males earning the incomes than females. There is a wide gap between the number of men

and women who earn under $10,000. The number of women who earn under $10,000 is

45,180,000 compared to 27,653,000 males. The chart depicts the large gap between the number

of men and women earning high incomes. Four times more men than women earn an income of

$250,000 a year (“The 2012 Statistical Abstract: Income, Expenditures, Poverty, & Wealth”).

           It appears that there is a direct correlation between the gender pay gap and the age of the

individuals being discussed. With an increase in age, the wage gap between men and women

increases. An example is that female employees under the age of 25 face a 15 percent pay gap

from males under the age of 25. This means that women under 25 earn 85 cents to the under 25

year old male’s dollar. The gender wage gap increases for women who are older than 25 but

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younger than 35. The average wage gap of this age group is 19 percent. For middle-aged women,

the gap expands to an average of 25 percent pay gap. Middle-aged women earn 75 cents to every

middle-aged male’s dollar. Women over 50 earn 73 cents to every dollar of what men their age

make (“Gender wage gap widens with age - March 2011”). It is interesting to note that even in

fields that are mainly women, men still earn higher wages. For example, female secretaries earn

only 83.4% as much as male secretaries (Thomas).

The bar graph “Male and Female Earnings By Educational Attainment” (Exhibit B)

depicts the average earnings that men and women can expect for various degrees. This data is

based on data from 2007 to 2009. It is evident that though both male and female salaries increase

with each level of education, however, male salaries increase at a significantly higher rate. As

shown by the red text, research finds that men that have attended college but who do not have a

degree can expect to earn as much as a woman with a Bachelor’s degree. Also, women that have

received a Doctoral Degree earn approximately as much as a male with a Bachelor’s. Looking at

these statistics may discourage women from obtaining higher degrees because their male

counterparts are valued more even with less education (Carnevale).

The graph, Percentage Gap Between Median Men’s and Women’s Wages, for All Full-

Time Workers (Exhibit C) demonstrates the average wage gap in various countries around the

globe. This graph shows that the United States has a significantly higher percentage gender wage

gap than many other developed countries. Although it is not the worst, the United States still falls

closely behind countries like Finland, Portugal, and Spain. Based on 2006 data, Belgium had the

smallest gap from this selection of countries with women earning 90% of men’s salaries. Korea,

however, has the widest gap with women earning on average only 60% of men’s salaries. Data

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shows that compared to other similar and developed countries, the United States gender gap in

wages in considerably high (Wade).

The median weekly earnings of full-time, United States employees during the third

quarter of 2011, depicts the pay difference between men and women. The country’s 101.4

million full-time employers had average median weekly earnings of $753. The median for men

during this quarter was $827, while women’s median weekly pay was $673. Women’s weekly

earnings amounted to 81.4 percent of men’s earnings. These statistics are from the graph,

“Median usual weekly earnings of full-time wage and salary workers, not seasonally adjusted,

third quarter 2011” (Exhibit D) (“Median weekly earnings, third quarter 2011”).

The earnings ratio between females and males is even greater when race and ethnicity are

accounted. Although it is expected that white women have the lowest gender wage gap, this is

actually not true. Hispanic women earn 92.9 percent as much as their male counterparts. White

women earn 82.5 percent as much as white males. Comparable ratios consist of African

American women earning 90.2 percent of African American male’s pay and Asian women

earning 70.1 percent.

The gender wage gap is smaller for non-white groups in comparison to their own race

because males of different races are often paid lower wages and salaries than white males. The

median weekly earning for full-time African American men was $661 per week in the third

quarter of 2011. This is 78.0 percent of the median pay for white males, which amounts to $847.

African American males and white males have a larger wage gap (78.0 percent) than African

American females compared against white females (85.3 percent) (“Median weekly earnings,

third quarter 2011”).   

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Although the overall gender earnings gap is large, it is even greater for women of color

and different cultures. When comparing women of color’s wages to non-Hispanic males, the

difference in extraordinary. African American women only earn 61 cents to every dollar that a

white non-Hispanic male earns. Latina women are paid even less, earning 52 cents to every

white male’s dollar (Thomas).

Empirical Results

          For women in the labor force, the gender wage gap is a sensitive topic. Women believe

that they are equally qualified, have a strong work ethic, and many other strengths that justify

pay equality. It appears that the gender wage gap is shrinking compared to past numbers, which

provides hope to women who are currently and also entering into the labor force. Through our

research we have determined that there are a variety of different factors that may explain the

wage gap. Some people believe that the wage gap is entirely explained by these factors, whereas

others claim that the wage gap is fictional. We believe that the wage gap exists but is

overestimated. The Oaxaca Decomposition seems to be the most accurate and reliable

calculation currently available to determine discrimination. Although not all contributory factors

are accounted for in this calculation due to imperfect information, the Oaxaca Decomposition

provides a generally good idea of the current wage gap percentage in society.

Our research provides us with the views that the gender wage gap is mostly attributed to

biases against women, occupational crowding, and women’s personalities. Even with laws and

acts that enforce the illegal acts of discrimination, it is hard to change individual’s perceptions.

Individuals who have biases against women will not be able to overwrite them just because there

are laws enacted against it. Companies and individuals may be unaware of such biases even

though they may be partaking in such practices.

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Occupation crowding is a factor in the gender wage gap because women have been

segregated into specific occupations since they have been able to work. This is related to the

biases against women, because they are seen as not being able to have high roles in society.

Our research also proves that female’s personalities are a factor of the gender wage gap

because they are not extremely persistence in the workplace. Women are less likely to ask for

salary increases from their employers. Women are also quieter about their work and

accomplishments causing them to sometimes go unnoticed. These factors are the major reasons

for the gender wage gap in the United States and in many other countries.

Due to the fact that we are both females soon-to-be entering the labor market, all of this

data and analysis is important to us. We will be facing this discrimination once we begin out

careers and the research presented in this paper will help us understand and better evaluate

whether or not we are being paid enough for the amount of work that we do. Prior to this

research we were informed that there was a wage gap but were not aware of neither its

significance nor any possible causes and explanations. Now, we are capable of understanding

this topic and applying our knowledge to the world around us.

Summary and Conclusions

In the United States, the gender wage gap is still present despite the initiatives that are

being made by the government, the United States, and President Obama. It is apparent that it is

still unclear how to solve the problem and eliminate the gender wage gap.

After our research, we believe that more enforcement needs to be taken to ensure that

discrimination and biases against women is not occurring in the workplace. In order to enforce

this, we believe there should be a similar process of auditing companies to ensure that they are

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not participating in any inequality practices. If companies are caught using these practices then

there will be severe consequences. Also, we hope that the possible occurrence of being audited

could cause companies to ensure that they are participating in completely ethical and unbiased

acts.

If the gender wage gap were to close, social stereotypes, biases, and prejudices need to be

eliminated. Mostly, perceptions of women need to be improved and revolutionized. As of

present, this is unlikely to occur. Economists believe that a reduction in the gender wage gap

would be beneficial for countries and their economies. A decrease in the gender wage gap is

expected to provide substantial increases in GDP. It appears that a gender wage gap reduction

will not only be beneficial for women, but also for the economy as a whole, which is needed as

of the current times.

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Appendix

Exhibit A- Money Income of People- Number by Income Level and by Sex, Race, and Hispanic Origin: 2009

"The 2012 Statistical Abstract: Income, Expenditures, Poverty, & Wealth." Census Bureau Home Page. N.p., n.d. Web. 3 Nov. 2011. <http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html>.

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Exhibit B- Male and Female Earnings By Educational Attainment

Carnevale, Anthony P., Stephen J. Rose, and Ban Cheah. "The College Payoff: Education, Occupations, Lifetime Earnings." Georgetown University. Georgetown Univesity. Web. 2 Dec. 2011. <http://www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/collegepayoff-complete.pdf>.

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Exhibit C- Percentage Gap Between Median Men’s and Women’s Wages, for All Full-Time Workers

Wade, Lisa. "Comparing the Gender Wage Gap Across Countries » Sociological Images."The Society Pages. The Society Pages, 3 Apr. 2010. Web. 01 Dec. 2011. <http://thesocietypages.org/socimages/2010/04/03/comparing-the-gender-wage-gap-across-countries/>.

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Exhibit D- Median Usual Weekly Earnings of Full-Time Wage and Salary Workers, Not Seasonally Adjusted, Third Quarter 2011

"Median weekly earnings, third quarter 2011." U.S. Bureau of Labor Statistics. 27 October, 2011. Web. 7 December, 2011. <http://www.bls.gov/opub/ted/2011/ted_20111027.htm>.

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