Here’s a little story from 2002:

Julie and Aksel met in the waiting room at XYZ company. A pioneer of machine learning at the time, XYZ had succeeded in turning eyeballs. This attention had managed to drive ambitious, young graduates toward the path of XYZ as well. Julie and Aksel were among these zealous candidates. After clearing the arduous assessments, they emerged on the top. Now they were here, sitting in person to grab their seats in one of the top tech teams in the country. 

As predicted, both the bright candidates went home in joy and celebrated in their own ways for both of them secured the jobs, except there was a slight difference in pay. XYZ offered Julie a whopping package of $90,000 a year, while Aksel was promised $100,000 annually. 

If you are not already aware of the gender pay gap in the States, you might assume that Aksel might have had a little more edge than Julie, hence the slight difference in pay. But most company leaders know that that was the trend back then. We know the names who helped narrow the gap over the course of many years but the culprit of making it wide in the first place has managed to escape the name-smearing all these years. Society and the old times have shouldered the blame up until now. 

The board at XYZ was not concerned about this ‘little’ gap. This difference was run-of-the-mill to them and besides, the trend of discussing salaries was not quite common then so they were spared the questions from the female employees. 

That’s not entirely true. In a world driven by money, a good-looking salary becomes a badge of honor for people when they rub shoulders with other brilliant minds. In their attempts to distinguish themselves from the garden variety, people resort to revealing the big numbers making their way into their accounts each month. And as fate would have it, Julie and Aksel frequented similar parties and dinners and both soon learned the ‘slight’ difference in their salaries, this little knowledge changing the way they felt about their jobs and their ambitions.

You see, professionally, both of their performances were at par. Both of them had graduated ‘magna cum laude’ from their universities. Both of them had stellar curriculums and internship projects. And at XYZ, they had come to become the most prized employees. So why the difference in pay? And no, Julie did not get any additional non-salary benefits either. 

As years passed by, both of them continued to climb the corporate ladder. But here’s the funny thing, after reaching the senior board member level, Julie’s salary plateaued while that of Aksel continued to grow. And no, it wasn’t the difference in their performance. Turns out, the gap is wider at the top. Here, for every $1 Aksel made, Julie made only 83 cents. 

In 2023, you must imagine that the scenario looks different. 2 decades is a long time after-all. Well, we are sorry to burst your bubble yet again. The difference has been narrowed by a pithy 20% in all these years. Now for every dollar a man makes, a woman makes 92 cents. In other words, the Julies of 2023 make an equivalent of $92,000 for every $100,000 Aksels make. And just as in the above scenario, the chasm of this inequality only widens at the top. 

Let’s face it. We have all heard these stories repeatedly in our lives. We have seen our brilliant friends and family go through them and even worse, we have borne the brunt of this injustice. The device you are reading this blog on is a testament to the high speed of growth at which our world is moving. And yet, why is the realization of our very own human values of equality seems to be barely crawling?

There seems to be no one tenable reason that can explain this difference. But one that is cited most is parenthood. Mothers ages 25 to 44 are more likely to be in the labor force than women of the same ages with no children with fewer hours each weekend. Evidence suggests that the effect is short-lived for many or is a mini difference. At the same time, men tend to get paid more when they become fathers. They seem to be more motivated, more likely to work, or tend to spend more hours working each week than men without children at home. This seems to be a fair reason, considering people believe that it’s the mothers who spend more time with the child while the man goes out to earn more to be able to sustain the family. Whether this reason has any real stock behind it is completely contingent on the kind of families people have and the dynamics between the mother and the father. 

But as business leaders, making decisions based on contingencies does not go too far. This is where stereotypes and gross generalization needed to be relied upon for making big decisions in terms of hiring and investment. And perhaps, this is what the current landscape reflects. Most business leaders are only following the trend and doing what the market suggests is best for their business. However, some anomalies do surface demanding leaders to reevaluate their basis for making decisions. But that is a discussion for another time when we discuss how going against the grain of the existing trend has panned out for most businesses. 

For now, let’s discuss further the current scenario in detail and possible causes of this gender gap. In recent years, the younger population –aged between 25 to 34– have moved closer to men in terms of wages. Since 2007, this difference has been steady at about 90 cents to a dollar or more in the same age group. But even as equality seems to be within grasp at the beginning of their careers, it becomes elusive as they age and with passing time only seems out of reach. 

As we see in the above example, young graduates Julie and Aksel had a difference of 9 cents per dollar when they started. They must be around 25-27 years old around that age but as they became older this difference came to be about 16 cents in 2022. This is the average difference between the salaries of men and women in the age group of 37 to 46. This was the pattern in earlier years– 2005 or 2000– as well. And at the current speed of progress in this area, it might as well be the pattern in the coming future. 

Women tend to lose the pay battle significantly in the ages between 35-44. From 92% as much as men to 83% as much. This ratio further drops to 79% in the ages between 55 to 64. 

Unfortunately, this has been the norm in the last four decades. 

The Impact of Parenthood on Salary Packages

This increase may further be explained by the age at which women are more likely to have children under the age of 18 at home. In 2022, 40% of employed women between the ages of 25 and 34 had at least one child at home. This was true for 66% of women of ages 35-44. However, 39% for women aged 45-54 and 6% for 55-64. So then again this reason is not conclusive in itself. 

Conversely, the share of employed men with children under the age of 18 at home rises at 58% in 2022 at the age of 35-44. But this is also when they tend to receive the highest pay, while the pay of employed mothers doesn’t see any peaks. 

As discussed earlier, parenthood demands women to pause their careers. Now whether this happens by choice or necessity is contingent on every individual woman, this being the outcome regardless of their individual circumstances. In 2022, 70% of moms aged 25-44 worked or looked for work, compared to 84% of women without children. Moreover, even when employed, younger mothers tend to reduce their working hours by 2 hours per week on average than other women of the same age group. These numbers have also been repeated year after year when it comes to engagement at work for women.

There is another very interesting statistic to demonstrate the impact of parenting on salaries for people between 25 to 54. In 2022, moms earned 85% of what fathers earned, while women without children earned up to 97% of what men earned. This statistic showed a big drop for the age group between 35 to 44 where women, whether or not they were mothers, made 80% as much as fathers. What may come as a surprise is the pay difference between an average woman and a mother of the age group 45 to 54. Mothers make more money than women with no children at home for this age group. While men for age groups, 35-44 and 45-54 earned only 84% as much as fathers. 

But again, the above patterns in the difference of earnings between employed mothers and women with no children at home also stem because of the difference in education levels between them. In the age group of 25-34, 61% of women without children at home had an education equivalent to or higher than a Bachelor’s degree while for mothers it was only 37%. 

However, this doesn’t present a rounded reason because the boost in earnings for women from college degrees increased in the 1980s but over time it failed to close the gulf in the earnings between men and women and came to a halt around 2010. 

The Impact of Broader Economic Forces on the Wage Gap

Economic forces tend to affect different industries in different ways. And depending on the number of men and women working in the majority of respective industries, their earnings are affected due to external pressures. For example, the economic climate between 1982 to 2002 allowed a stable increase in earnings for women while men made around the same amount of money throughout. 

Although, the economic climate of the 21st century hasn’t proved to be very favorable for women so far making it difficult for the gender gap to close. 

What’s Next?

Factors such as a higher education and shift to higher paying jobs and an increased experience of the market helped women make this long journey of closing the gender gap since 1982. But this journey has since 2002 suffered a major windfall and the pay gap has stuck since, ranging from 80 to 85 cents a dollar on average. 

Perhaps that is because the aforementioned factors have exhausted themselves and now other factors have to be considered and experimented with for any significant changes to be seen. Factors like societal and cultural norms and workplace flexibility have to be taken into account in addition to the balance between work and family for both genders. Even in more progressive countries like Denmark, parenthood continues to be a bottleneck in closing the gender pay gap. 

Maybe we have come to a point where generalization in genders has become more adverse than beneficial. Perhaps, managers need to walk the extra mile in considering the uniqueness of each candidate rather than arriving at conclusions based on ancient stereotypes. 

The Julies of 2022 might actually have more potential than Aksels and might be able to contribute more to companies’ revenue but leaders won’t find out unless they are willing to try out.