The Solution To The Gender Wage Gap
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The Solution To The Gender Wage Gap

Claudia Goldin, a Harvard economist and leading scholar on women and the economy, recently published a thought-provoking study in the American Economic Review on the gender wage gap in the United States. She reminds us that women earn around “77 cents on the dollar” of what men do. Based on a careful review of the wage data across professions, Professor Goldin reveals a startling discovery. The wage gap is not because women are in different professions – but rather, because they are paid less in the same professions.

As a son, brother, and partner, these statistics were troubling to read. My mother worked tirelessly to help raise my sister and I so we could go to college. My sister is starting her career over again after staying at home to take care of her son for nine years. Meanwhile, my partner is absolutely the most hard working, detail oriented, results driven – not to mention the kindest person I know. When she was passed over for a promotion and a raise a year ago, we were both disappointed and angry. Eventually, the firm rectified their decision, but it was maddening to have to fight for equality as a top performer.

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In her study, Professor Goldin departs from some traditional “solutions” to the gender wage gap. She says, “The solution does not (necessarily) have to involve government intervention and it need not make men more responsible in the home (although that wouldn’t hurt).”  So what is her answer? She suggests changes in the workplace. Not just more flexibility, but less incentive to pay those who work long hours disproportionately.

As the CEO of my media business, I’d like to provide some observations from my experience on why the gender wage gap occurs and propose a new alternative solution that accounts for employer incentives. Read on to see how my solution could help to stamp out potential biases and focus solely on the business aspect of hiring and pay.


First, let’s review how hiring actually works. It’s hard to resist hiring people who look like you, talk like you, and act like you. It turns out, people are looking for “the same commonality they might find when choosing friends or romantic partners,” according to a recent study by Lauren Rivera, Kellogg School of Management professor of management and organizations.

Communities of homogeneity are prevalent throughout all time periods across all countries based on anthropological studies. How else do you explain the Little Italy’s or Chinatowns across our nation? Why do jocks sit on one side of the cafeteria and thespians sit on the other side of the cafeteria? Why is the largest percentage of marriages between the same race? People just like to be around more people like themselves.

If your new CEO came from Chico State, you can bet that other Chico State alumni will soon follow, even if Chico State isn’t on the list of target recruitment schools. If the new VP of Sales at Yahoo came from Google, surely more Googlers will follow as well. Race and gender tend to be the two predominant factors for engendering trust, followed by common interests, education, and work experience.

If you don’t happen to fit the interests and similarities of the person paying your salary, it’s not like you will be burned at the stake like the witches of Salem’s past for being misunderstood. You may simply not be taken care of as much as others, or as much as you think you should. What’s worse, if the powerful people that you observe act nothing like you, a self-forming glass ceiling might be created.

But given my experience as a business leader – and a writer – I understand the value of diversity in opinions, perspectives and experiences. I’ve seen these benefits come to life in the workplace – not just diversity by sex, but also by race, age, and beliefs. And I believe that even small steps toward a more diverse workplace can have huge benefits. Seeing someone like you in power is hopeful.

But introducing more diversity in the workplace is much easier said than done. Let’s move on to something more concrete and actionable.

Gender Wage Gap Chart


I’m going to ask you to join me in a hypothetical hiring scenario. You are the CEO a tech startup that raises just enough money to last for only one year. It is do or die at your one chance at mega riches and glory. As the leader of the company, one of your key responsibilities is to hire the right people, women and men, who can put in 100%+ effort into making your company a success. You’d give employees a competitive salary and a piece of the pie to align their interests.

You would also need to find a balance between working your employees to death and making your company a success. Push too hard or pay too little and your employees will quit for greener pastures. Ideally, you would want to hire employees who can deliver more production for a set wage, i.e. you want the best bang for your buck.

However, one of the main things a man cannot do that a woman can do is give birth. Given women have been giving birth since the beginning of time, it’s fair to reason there’s a chance your female employee(s) might give birth at some point in her career and need to take leave. This likelihood may subtly impact the perspectives of some hiring managers, especially those at companies that demand a lot of hours over many years from employees (like tech startups).

As the manager , if you felt you couldn’t “get” 12 months of production, what would you do? Rationally, you might figure out a way to align salary with production, i.e. reduce wages. On the other hand, if an employee is demonstrating more than 12 months worth of production, you might increase their compensation.


Applying Professor Goldin’s framework to my hypothetical scenario, my solution would be twofold. First, I would promote work practices and a culture where there is flexibility on where and when work is done. Second, I would make sure that I hadn’t erred to far in paying people for working around the clock – asking myself tough questions like “does face time exist at my company, even though I might not see it?”

But I’d ask you to consider an alternative solution.  That is, parental leave. Let’s start with some facts: the average maternity leave is 12 weeks in America, 14 weeks in German, Japan, and New Zealand, and 52 weeks in Canada, Croatia, Denmark, and the UK (unfortunately, there’s no dispute that the US is one of the weakest developed countries in providing women and new mothers support entering motherhood).

What if there were a law that requires all companies grant the same amount of parental leave for women AND men? In other words, if a mother gets three months maternity leave, then the father would also get three months paternity leave.

Granted, the father doesn’t have to go through nine months of pregnancy, surgery, and pain, gets to take the same amount of time off. After all, maternity leave really is considered short-term disability by a majority of firms.

But in my view, a good husband will be there with the mother throughout the entire nine months. I’d even go as far as to say he should be waiting on her hand and foot, attending classes, and caring for her every need. A good father will worry just as much, if not more for his child because he might feel helpless since he cannot take away his wife’s discomfort or breastfeed his child. A good father would love to spend as much time with his new born as well.

So my solution? Eradicate the term maternity leave, and start using the words Parental Leave so that both the father, mother, partner can be treated equally.

Parental Leave By Country Chart


How does this solve the gender wage gap? It fixes incentives. As a hiring manager, once you realize there’s now a more equal chance both males and females may take Parental Leave, you might have a lower propensity to institute pay discrimination, whether consciously or unconsciously.

Although it’s certainly possible that my solution could drive productivity losses in the United States, it’s likely that it will significantly narrow the gender wage gap. There are other positive externalities as well: 1) Potentially healthier children, 2) happier marriages, and 3) fewer divorces.

The happiest countries in the world consistently hail from Europe. Is there a coincidence that places such as Norway, Denmark, Sweden, Norway and the Netherlands also have some of the longest maternity leaves in the world? Of course not. The Europeans are experts at “work / life balance.” They might not be as innovative as Americans, but being happy is what it’s all about. Europe’s gender wage gap is about 16.3%, roughly 4% better than the US’s gender wage gap.

If you’d like to narrow the gender wage gap, please speak to HR or your boss and propose equal Parental Leave for men and women.

Questions To Think About

Male readers: Would you like to have more paid time off to take care of your baby and support your partner in motherhood? Do you want your mother, wife, sister or daughter to receive equal pay?

Female readers: Would you like to have your partner help change more diapers, wake up in the middle of the night to calm the baby, help you run errands, make you feel better when you aren’t well, and experience your newborn together?

Hiring managers: Would you like to have happier employees who are more loyal, more appreciative, and more productive? Wouldn’t you like to have the same benefits as well? 

Everyone: Who pays for gender income equality? Is pay discrimination purposefully done or unconsciously done? Why would someone not be in favor of equal parental leave?

Photo Credit: Kong-Savage Arthouse

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Sam Dogen is the author of the new personal finance book "Buy This, Not That: How To Spend Your Way To Wealth And Freedom." Sam has been using Personal Capital to keep track of his finances for 10 years. He is the founder of Financial Samurai, one of the largest independently-owned personal finance sites with over one million visitors a month.
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