Why Women Get Paid Less

I know we touched on this last month when we talked about a survey that found women are becoming more and more financially savvy and as a result are investing more to meet their goals. But today, I want to delve deeper into the “pay gap”—why it’s still there and what it means for our economy.

What is the current gender pay gap?

On average, women in the United States today are paid 77 cents for every dollar paid to men. That’s staggering and a number that has barely budged in over a decade.

Why are women still making less than men?

There are a few reasons. First, there’s the issue of less women at the top earning high-paying salaries. This ties into the “drop-out story” of women leaving the workplace to raise children. Second, women struggle with salary negotiations—partly out of fear of being negatively labeled. If a woman advocates for more money, she is seen as overly aggressive and self-centered, while a man is seen as going after what he wants. Third, there is the theory that women consistently undervalue themselves economically. Sheryl Sandberg mentions this in her book “Lean In.” Time and again, women look for opportunity advancements rather than financial compensation when moving up the corporate ladder. Sheryl also points out that women are often less liked as they climb the ladder than men. Because people are promoted based on not only competence, but also likeability, this can put women at a distinct disadvantage.

You mentioned the “drop out” factor due to motherhood. Can the pay gap be attributed to that, or are women choosing less lucrative careers?

It’s not about motherhood, and I can prove it. Say we take motherhood out of the equation entirely: Studies show that after graduating from college with the exact same degree as a man, women tend to start out at lower salaries and that gap never closes as they progress throughout their career. According to a report by the American Association of University Women, a woman who graduates from the same school, in the same major as her male classmate, taking a full-time job in the same occupation as he does, earns 77 percent of what her male counterpart does.

So what’s a lady to do? Are there tactics that work better than others when it comes negotiating a fair salary?

Absolutely! First, women can ask their employers the simple, direct question: “Am I paid the same as men in my role? Second, women need to understand their worth in the workplace. There is an interesting study headed by Adam Grant, author of “Give and Take,” that analyses the behaviors of men and women when negotiating salaries. The findings are very interesting: When women negotiate for themselves, they negotiate for less money than men—3 percent less. However, when women play the role of a mentor negotiating on behalf of another employee, their negotiations are right in line with men. This plays to the idea that women don’t quite understand their own worth. While men often march right into their boss’s office for a raise (and think they deserve it), women will tie a salary increase to “fairness” before their own merit. Women must understand they deserve the same amount as a man, not just because it’s “fair,” but because they deserve it.

You said something earlier about this issue’s effect on the economy. What is the economic impact of women making equal pay to men?

It’s funny, I spoke to Sheryl Sandberg recently and she said everywhere she goes, people tell her that her book is costing them so much money—because women are asserting their right to be paid the same as their male counterparts. But really the opposite is true: Paying women more would benefit us all. If the gap were to close and women were to be paid that 33 cent difference, economists estimate that the stimulus effect would grow the U.S. economy by at least three to four percentage points. In contrast, the $800 billion economic stimulus package that Congress passed in 2009 to bail banks out of the recession is estimated to have grown the GDP by less than 1.5 percent overall—less than half the estimated benefit of closing the pay gap.