February 13, 2018

How America is tackling the gender pay gap

How America is tackling the gender pay gap

A handful of states in the US have introduced measures to bar employers from asking job applicants what they currently earn so that their new salaries are not based on the previous figures.

The aim is to stop employers perpetuating the gender wage gap as advocates argue that women often start out with lower salaries. Google and Amazon are two companies which have stopped asking applicants their current salaries.

“What these bans are doing is ensuring that employers pay employees for the job they have to do,” says Kate Nielson, state policy manager for the American Association for University Women, which supports the new laws.

On average, women in the US earn about 80% of what men earn. For black and Hispanic women the gap is even wider. Some of the difference is due to factors such as the occupations women work in or part-time work.

However the wage gap is 7% for women and men just one year out of college. This gap widens over time.

“A growing number of international studies have recently found that imperfect competition in the labor market can account for a large part of the unexplained wage gap,” writes IZA World of Labor author Boris Hirsch on gender wage discrimination. “In imperfect markets, employers can save on labor costs by engaging in monopsonistic wage discrimination against women who are less sensitive to wages when supplying labor to a single employer.”

“Since wage discrimination raises employers’ profits, it is fostered by market forces and this is likely to persist in the long term.”

Companies typically offer about 10% above someone’s current salary, says Katie Donovan, who founded the consulting firm Equal Pay Negotiations. In some cases, salaries are used as a screening process as those who earn high salaries are seen as responsible and competent.

However, some hiring experts believe the new legislation could have unintended consequences. Companies may be prompted to begin pay discussions earlier on in the hiring process.

For example, if job candidates don’t volunteer salaries during the discussions, firms are likely to assume their pay is lower than it is.

Advocates argue it will take a few years of job switching and hiring before they can tell whether the measure is meeting its goal.

Read more articles on the gender divide in the labor market.

For specific questions on gender wage differences, get in touch with Solomon W. Polachek.