How Addressing the Gender Pay Gap Could Buoy the Economy

How to address the gender pay gap.

Does addressing the gender pay gap make sense from an economic standpoint? Many analysts studying the issue say yes.

The gender pay gap is once again in the news after a Google employee penned a controversial memo arguing that aiming for 50/50 representation of men and women engineers was misguided. The employee, engineer James Damore, was fired for raising the issue in a provocative manner, but the question looms: Does addressing the gender pay gap make sense from an economic standpoint?

Many analysts studying the issue say yes. A 2015 McKinsey report, for instance, argued that addressing the issue would add $12 trillion to global growth by 2025. McKinsey reports that a "full potential" scenario in which women's talents were brought fully to bear in the global workforce, could add $26 trillion or 26 percent to global GDP by 2025.

The Current State of Gender Pay Equality

A PwC report from last year found that there are still big gaps in gender pay equity. Overall, the report found that women got paid 20 percent less than their male cohorts. Women also held fewer leadership positions and accounted for less than 5 percent of Fortune 500 CEOs — despite the fact that women held 47 percent of all jobs. PwC reported that there's only been a 3 percent closure of the gender gap over the past 10 years. At the current rate, women might not reach parity until 2133.

Not everyone agrees. A recent Pew study found that since 2000, one-third more women have graduated from college than men. At the current rate, according to Fast Company, young women's wages will overtake men's by 2020.

Best Practices for Enforcing Gender Equality

Whatever the demographic reality, the perception of gender inequality in the workforce can be bad for business. The PwC report found that 60 percent of employees wouldn't apply for jobs where they knew gender inequality existed. Some 72 percent of employees surveyed said that salary transparency is good for business and 70 percent said it helped achieve job satisfaction.

So, is salary transparency a silver bullet? Not so fast. In a recent Harvard Business Review post from Todd Zenger, professor of strategy and strategic leadership and presidential professor at University of Utah's Eccles School of Business, argued that "broadcasting pay is as likely to demoralize as it is to motivate." The danger, Zenger argues, is that some employees will find out that their peers make higher salaries. The counter argument, backed by studies from Cornell University and Tel Aviv University as related in Business Insider, is that when employees have a realistic assessment of their salaries, they will work harder to achieve parity.

Beyond salary transparency though, state laws are attempting to make gender discrimination practices illegal. For instance, at this writing, just two states — Alabama and Mississippi — lacked state pay equity or gender-based employment discrimination regulations. Some states are taking a harder line. Maryland, for example, prohibits employers from directing female employees into less-desirable career tracks (a.k.a. mommy tracking).

Good for the Bottom Line?

Evening the score for gender-based pay is based on the belief that higher pay for men is a holdover from the days when there were fewer women in the workforce and men were seen as the primary breadwinners in a household. That belief, plus the lack of women in leadership roles, are self-reinforcing.

By challenging such beliefs, women might be liberated to offer their talents and creativity to the workforce since they could reasonably expect to attain promotions for their work. This imperative makes intuitive sense but still must grapple with the reality that women's biological roles dictate that many will leave the workforce, if only for a short time, because of pregnancy. That may be one reason that men work significantly longer hours, as referenced in the Wall Street Journal. It will also test the belief that some women gravitate to different professions than men, as discussed on Morning Edition, and men are more apt to take on work that contains a higher element of risk — either physically or financially — and often pay higher salaries.

Efforts to eliminate truly discriminatory practices will reveal once and for all if such beliefs are rooted in reality or have been used to hold women back. It's likely that the reality will be more nuanced than either side of the debate currently believes it to be.