Understanding the gender pay gap and how it hurts women's earnings and ability to build wealth

• The gender pay gap is the difference in earnings between men and women in the workforce.
• Many factors contribute to the gender pay gap, including unconscious bias and discrimination.
• In general, the gender pay gap is much larger for women of color.

Women's earnings play a pivotal role in building wealth and financial security. Yet what women make still comes up short. Though the Equal Pay Act of 1963 was designed to outlaw sex-based wage discrimination, a gender pay gap still exists and is hurting women's finances.

What is the gender pay gap?

The gender pay gap — also referred to as the gender wage gap — is the disparity in median earnings between men and women in the workforce.

"Historically, women have been paid less than men for the same work, and the gender pay gap measures how large that difference is," said Kathryn Valentine, who has an MBA and is the founder of Worthmore Negotiations, where she helps professional women learn how to negotiate in a way that improves outcomes and reduces backlash.

While the gender pay gap has become slimmer over the years, parity has not been achieved when it comes to women's wages and respecting women's work with comparable monetary value.

Quick tip: Equal Pay Day is a campaign to raise awareness about the gender wage gap and illustrates how much more women must work in a year to earn the same as men.

Does the gender pay gap exist?

Yes, the gender pay gap exists — and numerous government institutions and think tanks have the numbers to prove it.

For full-time workers, women earned 82% of what men earned in 2020, according to data from the Bureau of Labor Statistics. The following year, the agency released additional data that showed the median earnings from women in 2021 were 83.1% of median earnings for men.

This data takes into consideration full-time workers' earnings and offers a glimpse into the issue. Women are more likely than men to work in part-time positions. According to the Department of Labor, 63% of part-time workers were women as of 2020, compared with 37% of men. This may be because women take on more of childcare and caregiving duties. But even when you add part-time workers into the mix, the gender pay gap doesn't budge much.

The Pew Research Center analyzed 2020 data for both full-time and part-time workers and found that median earnings for women were 84% of the median earnings for men.

The gender pay gap also varies across race and age. With additional data, the Pew Research Center found the median hourly earnings for American women were 84% of what men earned for all workers 16 and older. That gap became narrower for workers between the ages of 25 and 34. But median earnings for women were still just 93% of median earnings for men.

<a href="https://www.pewresearch.org/fact-tank/2021/05/25/gender-pay-gap-facts/ft_21-05-18_genderpaygapupdate_new/"><img src="https://www.pewresearch.org/wp-content/uploads/2021/05/FT_21.05.18_GenderPayGapUpdate_new.png?w=640"></a>

And the gender pay gap widens as women age, according to the US Census Bureau. Based on quarterly workforce indicators, which look at monthly earnings among workers ages 35 to 44 in 2019, women earn less than men — and that gap continues to widen over women's lives.

Important: The quarterly workforce indicators are a set of 32 economic data points comprising employment, job creation/destruction, wages, hires, and other measures of employment flows. They are reported based on detailed firm characteristics (e.g., geography, industry, age, size) and worker demographics (e.g., sex, age, education, race, ethnicity).

The pay gap for women of color

The gender pay gap affects women of color more.

"It's a bit misleading to look at the averages, though, as the gender pay gap varies significantly by race," Valentine said.

According to 2020 census data analyzed by the Center for American Progress, white women earned $0.79 for every dollar a white man earned.

That gap widened for women of color, with Black women earning $0.64 for every dollar a white man earned. Multiracial Black women earned $0.63 for every dollar a white man earned. And the gap widened further for Hispanic women, who earned $0.57 for every dollar a white man earned.

Earnings for Asian women told a different but incomplete story. According to the Center of American Progress analysis, Asian women earned $1.01 for each dollar white men earned. But that number dropped to $0.98 for multiracial Asian women.

These numbers don't share the full picture, as the statistics for Native Hawaiian and Pacific Islander women were not available. Women in these communities tend to have lower earnings, according to the analysis. It's noted in the analysis that there are many subgroups and nuances in the Asian population that aren't reflected in the numbers.

Why the gender pay gap exists

Why, after all this time, does the gender pay gap still exist?

One commonly cited cause is that women choose lower-paid occupations or industries to work in. For example, the US Census Bureau found that 80% of elementary- and middle-school teachers — who are paid less than their college-educated peers with similar experience — were women. And that number increases to 97% for preschool and kindergarten teachers.

On the World Economic Forum's website, Lauren Tyson, an American economist, shared some of the reasons this might happen, saying: "Around the world, occupations like teaching pay less than occupations like engineering. So gender differences in occupational choice affect gender differences in earnings. Why do women and men make different occupational choices. Are there not enough role models for women in higher paying occupations? Are there barriers to female advancement in those occupations? The answer to both questions is yes."

But even when men work in occupations mostly dominated by women, men tend to earn more: According to 2019 data from the US Census Bureau, male elementary- and middle-school teachers had median earnings of $57,041, compared with $51,787 for women.

Payscale found that even when all things were equal in industry and role, women earned $0.98 for every dollar a man earned.

Another factor that affects women's earnings and job choices is that many women are the go-to default parent and take on the unpaid labor of childcare. Pew Research's 2020 analysis found mothers were more likely to say they needed to reduce work hours compared to fathers — yet both parties are parents.

Another factor to consider is the lack of paid family leave. Women are leaving the workforce in droves because, in part, there's no federally mandated paid family or sick leave. Having paid family and sick leave is one way to help close the gender pay gap.

As long as women are taking on unpaid labor like childcare and caregiving, they're spending time out of the workforce or working reduced hours. That, in turn, can affect work experience and the potential for promotions and higher pay.

Despite women pursuing higher education at greater levels than men, they still earn less than men. What people may not want to acknowledge is that the gender pay gap has a lot to do with unconscious bias and gender discrimination. A 2017 study found that four in 10 working women (42%) said they had experienced gender discrimination at work.

Companies and cultural upbringing play a role in the gender pay gap as well. "Lack of transparency in compensation ranges as well as lack of education — lots of women of color don't even know negotiating is allowed and expected," Giovanna González-Chávez, a financial educator and the founder of The First Gen Mentor, said. "Cultural learnings can also affect women of color from asking. In many Latino households, the cultural expectation is to work hard and keep your head down which clashes with the corporate culture that expects you to speak up and demand your worth."

Important: On top of getting paid less than men, women also pay more for certain items like deodorant because of what's called the pink tax.

How can we close the gender pay gap?

Many of the issues with the gender pay gap are systemic and require change at a higher level. Companies need to commit to paying women the same as men for the same type of work.

"If organizations truly want to help close the wage gap, they need to publicly disclose compensation ranges for all positions both externally and internally," González-Chávez said. "They should also have an understanding of the cultural difference that could keep women of color from negotiating or asking for promotion."

Also, having access to paid leave would benefit women and families. But there are steps women can take to close the gender pay gap. While the responsibility of closing the gender pay gap shouldn't fall on women, there are actions women can take in the meantime.

"Negotiating is a powerful tool to help close the gender pay gap if it is used in a gender-specific way," Valentine said. "Too frequently negotiation advice is tossed out like to say, "I deserve more," that may ignite backlash for women, ultimately harming their careers."

Valentine recommended the following process:

• Research the market rate for your position. "I have found former employees to be the best source of information. Make sure you ask some white men, since they are the highest-paid group," she said.
• Highlight your previous work performance, how your work will affect the company, and then make an ask. "For example, 'This past year, I was able to X; I am on track to accomplish even more this year, which puts the team in a great position to hit our annual targets. I did come across this data recently and was surprised to see that my pay is lower than average for this role, despite the fact that I am an above-average performer. Can you help me close this gap so that I can stay 100% focused on driving the most impact for our team?'" Valentine said.
• Make it about more than salary. "Never negotiate for just salary — this conversation is an opportunity to make you happier and more productive, which is better for you and for the company. Alongside salary, you can ask for things like continued education, new responsibilities, performance bonus, an additional support," Valentine said.

The bottom line

The gender pay gap is a complex and nuanced issue that varies by industry, race, and age. But the facts remain: Women earn less throughout their lifetimes, and the influence on their wealth is staggering. The result could be a loss of hundreds of thousands of dollars or more throughout a woman's lifetime. Women can take steps to research, negotiate, and ask for more. But systemic change on multiple fronts is required to level the playing field.

• Read more from Women of Means:
• I never planned to be the breadwinner, but having a stay-at-home husband made the benefits of invisible, unpaid labor crystal clear
• 3 habits of high-earning women that can help just about anyone with money, according to a financial planner who's worked with millionaires
• A career coach who spent 16 years in corporate America breaks down what women should do monthly, quarterly, and annually to position themselves for a raise
• Understanding what the glass ceiling is and how it affects women in the workplace