Pay inequality can affect individuals and as well as the overall economy. Here's how income inequality and economic growth are related.
Pay inequality is often considered to be an issue of employment discrimination that can affect individuals and their families. However, income inequality and economic growth don't offset each other. Pay inequity can have repercussions for firms and the national economy, but many finance leaders may be reluctant to discuss the matter for fear that a resolution to income inequality will open the firm up to increased costs and discrimination suits.
Complying with federal and state equal pay laws, however, should be a no-brainer for finance leaders. It protects the organization and waylays concerns about whether or not pay is fair.
The Current State of Compliance
The ADP Research Institute¨ found that across all industries, men on average made 28 percent more money than women. The difference is largest in education, health and finance. It is smallest for millennial women who earn more than $140,000, but these women still earn less than men their same age in these high-paying jobs.
ADP found that in the finance industry, women make up 53 percent of employees but men — who work just 30 minutes more per week than women — earn 42 percent more pay. Although the workforce composition and time commitment are close to equal, the pay is not.
Identifying the Problem Without Creating a New One
Because these problems are pervasive, managers aren't likely to find solutions all on their own. Organizations should, therefore, perform a self-audit of pay and promotion relative to race and gender to get a handle on where their organization stands, and they should work with legal counsel to ensure the results are protected by attorney-client privilege. This allows the work to be used as it is intended. Then, working with counsel, an organization's executives can develop corrective policies for any pay equity issues that are uncovered. Comprehensive data can provide a clearer picture of what an organization does right as well as what it does wrong, and it can generate the information needed to fight preconceptions.
One of those preconceptions is that equal pay will cost the business more. In fact, income inequality and economic growth are inversely related. Harvard Business Review (HBR) reports that reducing gender inequality in the workforce could increase U.S. gross domestic product by $2.1 trillion. This comes from a mix of getting more women into the workforce, shifting more jobs from part-time to full time and increasing the proportion of women in jobs with higher productivity. If men and women achieve true economic parity, the U.S. economy could gain as much as $4.3 trillion by 2025, reports HBR.
When organizations talk about the costs of having to meet gender equity, they are admitting that they're not paying men and women equally. The reasons may be rooted in social biases and historic behavior rather than current policies. Resolving them may take time, but could lead to a more productive workforce and a stronger and more fiscally sound organization.