Pandemic Could Widen Gender Pay Gap

Women returning to the workforce face higher wage penalties than men

Stephen Miller, CEBS By Stephen Miller, CEBS March 24, 2021
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Pandemic Could Widen Gender Pay Gap

The gender pay gap in the U.S. has decreased only slightly in recent years, new research shows.

In 2021, women earn 82 cents for every $1 men earn when comparing all women to all men, according to compensation data and software firm PayScale's annual State of the Gender Pay Gap report, released March 24 in recognition of Equal Pay Day. That's the date that represents how far into 2021 women have to work to earn what men earned by the end of 2020.

The uncontrolled gender pay gap, which compares the median earnings of women to men without allowing for various compensable factors, has fallen by 7 cents since 2015, the firm reported, based on responses from nearly 1.6 million people surveyed between January 2018 and January 2020. Those findings were compared with responses from earlier PayScale surveys.

When controlling for factors such as job title, years of experience and location, PayScale found that women make 98 cents for every $1 that men earn, a decrease of 1 cent since 2015.

While 2 cents per dollar may seem small, when a 2 percent difference in pay is compounded over the course of a career, it adds up to women taking home significantly less pay than their male peers.

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"Businesses have a moral and legal responsibility to invest in ongoing pay equity analysis and monitoring to close pay gaps," said Shelly Holt, chief people officer at PayScale. "There are technology and services available today that make data-driven pay equity achievable for every organization."

Unemployment's Wage Penalty

Previous research by PayScale showed that people who are unemployed when they get a job offer incur a 4 percent wage penalty, and those who are unemployed for a year or longer receive a 7.3 percent wage penalty. In 2021, this will affect women and people of color the most due to statistically higher unemployment.

Women, for instance, are more likely to be unemployed due to the COVID-19 pandemic, in no small measure because of family caregiving responsibilities and school closures.

Nearly 3 million U.S. women dropped out of the labor force since the pandemic hit hard in March 2020. Women remain 2.8 percentage points below their November 2019 labor force participation rate, according to a February report from the Federal Reserve Bank of Minneapolis.

Now, "as women return to the workforce, they may experience wage penalties that will widen the pay gap in subsequent years," PayScale's latest report noted. For instance, women who were laid off and then return to work earn 77 cents for every $1 earned by men who were laid off, "suggesting that women see much higher unemployment penalties than men, which is consistent with previous research."

Many women work in occupations that have been heavily impacted by the pandemic, such as health care practitioners, health care support workers, educators, and jobs in the food-preparation and services industries, and they often work lower-paid positions in these occupations.

"Employers must put pay equity at the forefront of their compensation strategy if they want to avoid turnover down the road, as well as potential legal repercussions," Holt said. "This means ensuring pay equity is continuously assessed at every job offer, promotion and merit-increase cycle for any role across the organization."

DE&I and Pay

Women in most demographic groups earn less than men earn even when controlling for differences in compensable factors, PayScale reported. When looking at controlled pay data and diversity, equity and inclusion (DE&I) factors, the survey found the following:

  • Black women make 97 cents for every $1 white men with the same qualifications make, while Hispanic women make roughly 98 cents.
  • Among workers who were laid off and found other work, Black women had the second largest uncontrolled pay gap, 73 cents, compared to other groups of women. Hispanic women had the largest at 71 cents.
  • Only 22 percent of employers surveyed said that compensation is part of their DE&I strategy.

The gender and racial pay gaps can be addressed through commitment to pay equity with continuous analysis and monitoring, Holt said, as "2021 is the year compensation strategy will make or break businesses." She added that adhering to a consistent pay strategy, "particularly with transparency, will raise employee engagement by ensuring equitable pay for all employees and close the gender and racial pay gaps."

Pay Equity on the Radar

Sixty percent of North American organizations are addressing pay equity in their workplaces, according to the Workplace Equity Study conducted by WorldatWork, an association of total rewards professionals, and consultancy Korn Ferry. A total of 964 responses were received in September 2020, representing organizations of different sizes and across multiple industries.

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The survey also found that 16 percent of organizations report having high or full transparency in pay equity communications, while 19 percent report having no transparency at all.

Even in light of the current environment and the effects of the pandemic, organizations are continuing or accelerating their pay equity assessment processes, "indicating that this work is a top priority," said Tom McMullen, a senior client partner at Korn Ferry.

"There are obvious engagement, credibility and reputation benefits in organizations focusing on pay equity management," he said. "In addition, there is a strong likelihood of continued regulatory focus and increasing calls on transparency in pay equity reporting. And organizations that have not yet taken action should be on alert."

Employees' Doubts About Fair Pay

Employees' perceptions about their compensation is the focus of a new report from beqom, a cloud-based compensation software firm. Last November, the firm surveyed 1,000 actively employed adults in the U.S. for its 2021 Compensation and Culture Report.

As more employers gear up to increase hiring this year, "it's crucial employers are adjusting policies to meet employees' needs if they hope to attract and retain staff," beqom reported. However, a large number of employees don't believe their company pays employees fairly, and many would leave their company for an employer that provided greater pay transparency. For instance, the survey showed:

  • Slightly more than one-third (36 percent) of employees said they do not think their company pays employees fairly, a drop of 12 percentage points since 2018.
  • Women (40 percent) are more likely than men (31 percent) to think their company does not pay fairly.
  • Nearly one-fifth (18 percent) of employees say pay gaps within their company have increased during the pandemic.

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In addition, the belief that pay is not fairly determined was much more likely to drive employees away than a pay freeze would, the survey showed.

These findings "should be extremely concerning to employers, as even just the perception of a pay gap has a negative impact on employees' intent to stay," said beqom co-founder Tanya Jansen. "As employees re-evaluate what's most important to them in the workplace, they are seeking more transparency from their employers—so much so that 58 percent would consider switching jobs for a company with more pay transparency than their current employer provides."

Moving beyond the pandemic, she added, "pay equity and transparent communication around total rewards will be critical for companies hoping to retain and attract talent."

Moving Forward

While just over half (51 percent) of employees said their company implemented a new or updated DE&I plan this year, beqom reported, less than half (48 percent) said it included an equal compensation strategy in that plan, pointing to the fact that many organizations are not prioritizing equal pay as a part of their DE&I initiatives.

That's concerning, because without equitable pay, efforts to create diverse and welcoming cultures are likely to fail. PayScale's analysis showed that, on average, a Black woman with the same job and qualifications as a white man would need to repeat 2020 2.2 times in order to catch up to the lifetime earnings of white men. In these circumstances, Black women are unlikely to feel they're working for an inclusive employer.

"Organizations tend to approach diversity, equity and inclusion as siloed efforts," said Shaun Harper, executive director of the University of Southern California Race and Equity Center. "All three must work together, and compensation is a critical component."

Along with adjusting compensation policies based on a pay equity analysis and monitoring pay changes, he advised, organizations should "blend in qualitative analyses [and conduct] focus groups with actual employees to understand how they perceive their organizations and how DE&I efforts are understood and interpreted."


Related SHRM Articles:

Report: Wage Gap Narrows for Women Age 25 to 30, SHRM Online, March 2021

How to Ensure Pay Equity for People of Color, HR Magazine, March 2021

Pay Freezes Were Common in 2020; Employers Stay Cautious with 2021 Budgets, SHRM Online, February 2021

Related SHRM Resources:

SHRM members-only toolkit, Managing Pay Equity

SHRM Express Request, Salary Increase Projections 2021



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