Closing the Gender Pay Gap: New Approaches to an Old Problem

Introduction

Determining why women earn less than men do is far more elusive than collecting data confirming the existence of the problem. Is it overt discrimination? Is it because salaries tend to be historical in nature, thus when underpaid in their initial job, females tend to remain underpaid throughout their careers? Is it because employers use many different job titles making salary equity comparisons difficult? Is it because the Equal Pay Act, Title VII and Title IX are all somewhat ineffective? Each of these answers may help explain part of the problem. The more important query is what can the United States do to achieve equal pay, or at least get closer to that goal? Is there anything the public, or private, sector can do about it? This article focuses on exploring new approaches to address the pay equity issue, primarily at the state level. There are two primary problem areas where states have passed new laws, salary history questions and non-compete/no-poaching agreements. The article discusses progress and likelihood of success in these areas, among others.

Evidence of the Problem

According to a Pew Research Center analysis of median hourly pay, ² women make approximately 83% of what men earn. While the Pew study focused on the pay gap for women in hourly positions, there is ample evidence of the same phenomenon in more highly paid positions. A recent study by the Institute for Women’s Policy Research ³ indicates that even women in top positions such as CEO, VP and general counsel often earn only about 80% of what men with the same job titles earn. The same is true with midlevel jobs as well. Another recent study of compensation in the energy industry looked at the job of land professional (landman) and found evidence that women consistently earn less for doing the same job as men. ⁴ The median salaries for male and female land professionals with similar experience (1-5 years of experience) and educational background (bachelor’s degree) show that men earn about $7,000 more per year than their female counterparts earned in the same jobs.

An American Association of University Women study demonstrates the longitudinal nature of the pay gap problem. ⁵ Females earned about 55% of what men earned in 1960. The gap has shown steady improvement, with the discrepancy narrowing to 20% in 2017, and projected to fall to 14% in 2030. However, it is not an ethically acceptable position to say to any victim of discrimination that “things are getting better, just wait another 50 years,” especially after they have already waited 50 years. Women have a right to expect equal pay now, not at some distant point in the future.

Furthermore, the problem of pay equity tends to accelerate as a woman’s career progresses. If a woman’s starting salary for the first job of her career is less than a man’s would be, that initial difference, even if small, tends to cause a systemic career-long problem in terms of pay equity. A study conducted by researchers at Temple and George Mason looked at new hires who were paid a relatively small amount more than another worker hired at the same time was paid. ⁶ Assuming average annual pay increases of 5%, a male employee whose starting annual salary was $55,000 rather than a $50,000 salary for a female in an equivalent job would earn more than $600,000 extra over the course of a 40-year career. This significantly affects decisions such as retirement because the woman would have to work 3 years longer than the man to earn the same amount over the course of her career.

Actions to Address the Problem

What shall we do about the problem? History shows a record of very modest progress, but as a nation, we are far from the finish line. Compensation discrimination has been illegal for 50 years under U.S. law, including both the Equal Pay Act and Title VII. However, after more than a half-century, the combination of these two laws has not solved the problem. True, the wage gap is narrower now than it used to be, but that is scant solace for the women who earn less, but do equal work.

Federal Pay Equity Law

There are new proposals, at both the federal and state levels, which have the potential to narrow the gap. One important step at the federal level is for Congress to pass a law strengthening the rules on equal pay. Multiple versions of a “Paycheck Fairness Act” law have been introduced in every legislative session going back to the 105th Congress in 1997 (H.R. 2023, S. 71), up to and including the 115th Congress in 2017 (H.R. 1869, S. 819), but it has never passed both houses and gone to the President for signing. The bill has never made it out of committee for the most part, although the House did pass a version in 2009 (but it failed to get 60 votes in the Senate).

This bill, if ever enacted into law, could help reduce wage discrimination. The Paycheck Fairness Act would amend the Fair Labor Standards Act, one section of which is the Equal Pay Act, by revising remedies for, enforcement of, and exceptions to prohibitions against sex discrimination in the payment of wages. It would essentially extend protection to those who work in similar job categories by establishing equal pay for “equivalent” work rather than the current law which uses the term “same” job. The law would accomplish this by limiting the reasons for pay differences to three specific bona fide factors: education, training and experience. This type of approach to pay equivalency is one that is essentially based on a concept known as comparable worth, which holds that workers should be paid based on their value to an organization rather than a technical job title.

However, the current political reality in the United States is that it appears unlikely that the Paycheck Fairness Act will be able to pass in both houses of the Congress. Therefore, the trend over the past several years has been a movement to action at the state level rather than the federal level.

State/Municipal Pay Equity Laws

Though the federal government has not yet passed the Paycheck Fairness Act, some states have taken action on their own (as has also happened with minimum wages). The National Conference of State Legislatures indicates that approximately 32 states have enacted equal pay laws that go beyond the current federal law. ⁷

In this case, semantics are actually very important. The federal law, the Equal Pay Act, uses the term “same pay for the same work.” The problem is that due to slightly differing job titles or job responsibilities, it is often very difficult to prove that two jobs are the “same.” The basic concept of the “comparable worth” doctrine is that the law should protect not only the same jobs but also those that are equal, or comparable. These 32 states have laws that mandate equal pay for equal or comparable work. ⁸ While the laws passed in these various state and local jurisdictions share a common goal of eliminating pay disparity based on gender, they are not identical. Some use broad language, while others are drafted more narrowly.

An example of the most inclusive language is the law in Idaho. The provisions of this statute provide as follows:

No employer shall discriminate between or among employees in the same establishment on the basis of sex, by paying wages to any employee in any occupation in this state at a rate less than the rate at which he pays any employee of the opposite sex for comparable work on jobs which have comparable requirements relating to skill, effort and responsibility. ⁹

Comparable Work Laws

These relatively new state pay equity laws typically use one of two phrases to describe when the law should apply: either “comparable work” or “equal work.” If the law uses the term comparable work, it is clearly more protective than the federal law. Even those state statutes that use the term equal work tend to be more protective than the federal law.

The current federal law is too open to an interpretation that holds that it only requires equal pay for the “same” work. The concept of same work is substantially more limiting than the term comparable for plaintiffs seeking redress for pay discrimination. For example, if two jobs have slightly different titles with slightly differing duties, the likelihood is that the law will not apply. Whereas, if the term comparable work is used, then the precise job title and the exact list of duties becomes less important. A court would examine the general nature of the job responsibilities and the qualifications required, and if two jobs are comparable, then the law would apply. The list of states that, as of the end of 2018, have laws more protective than the federal law are the following: AL, AR, CA, DE, FL, GA, HI, ID, IL, IN, IA, KY, ME, MD, MA, MI, MT, NE, NV, NH, NM, NY, ND, OH, OK, OR, RI, SD, TN, VA, WA and WY, and this list is growing. ¹⁰

Salary History Question Laws

In the absence of action at the federal level, state legislatures are also starting to enact laws that try to get at the root causes of the gender pay gap. To accomplish this, rather than simply say equal pay for equal work is required, states are enacting “salary history” laws. These statutes prohibit employers from asking job applicants about their previous salary because of a “snowballing” effect. This means that salary disparities tend to perpetuate over a person’s career. State and local governments are increasingly adopting laws and regulations that prohibit employers from requesting salary history information from job applicants.

The statutes aim at ending the repetitive cycle of pay discrimination. Some state laws do not only ban pay history questions, they also prohibit an employer from relying on an applicant’s pay history to set compensation, if discovered or volunteered. As of the end of 2018, there are 12 states with such laws, and 10 municipal jurisdictions. ¹¹ The list of states with salary history laws includes CA, CT, DE, HI, MA, MI, NY, NJ, OR, PA, VT and WI. Municipalities with similar laws are San Francisco, Seattle, Chicago, Louisville, New Orleans, Kansas City, New York City, Albany, Philadelphia and Pittsburgh.

When a worker changes jobs, the new employer usually asks what the employee was making in their last job and uses that as a barometer of what they should be paid in a new job. However, to combat the problem of history-based pay, which almost always hurts women, multiple states and cities have recently passed legislation banning all employers from asking one particularly awkward question of prospective workers: How much did you make in your last job? The aim of the new laws is to help close the gender pay gap with the idea being that if employers do not set new wages based on past compensation, an initially low salary early on in a woman’s career will not necessarily doom her to a career of lower wages.

While this new legal restriction on salary history questions is not likely to solve the entire problem, it should have a positive effect. According to a survey by the executive search firm Korn Ferry, almost half of the companies surveyed (46%) indicated they usually comply with the legal requirements in the most stringent location where they operate. ¹² This means that employees working in states without this new law might not be asked about their salary history during new job negotiations, regardless of whether their state or city has such a law. Workplace-related laws that start in local jurisdictions often spread to others because multi-state or national companies decide that having a single policy rather than a patchwork of practices is simpler.

Most applicants find they are usually asked the same question in job interviews, regardless of the job for which they are applying, and that is the dreaded salary question: “What was your salary in your last job?” This question is a troubling one for most applicants; they just cannot win regardless of how they play it, especially if they are female. If they answer honestly, then they are likely to get a low-ball offer because their previous salary was not equal to other male applicants. Conversely, if they exaggerate their previous salary, they run the risk of being caught in a lie, and either not hired, or terminated after hiring for dishonesty. To combat this problem, some states and cities are passing new laws.

At the state level, Delaware, California, New York, Massachusetts and Oregon have all banned employers from asking about a candidate’s pay history. At the municipal level, New Orleans banned inquiries about previous salary for all city departments and employees of contractors who work for the city. New York City has banned public and private employees from asking about a candidate’s pay history, as have Philadelphia and Pittsburgh.

As more states/cities take similar action, it will likely have a domino effect. In a survey by the executive search firm Korn Ferry, almost 50 of 100 companies surveyed said they usually comply with the legal requirements in force in the strictest of the locations in which they operate, meaning workers in states without this law might not be asked about their salary history during new-job negotiations either. Therefore, in terms of most large multistate employers, it may not matter if all 50 states have such laws, once there is a critical mass of states; the odds are all but the very small employers will stop asking the salary history question.

No-Poaching/Non-Compete Laws

States are also starting to address two other employment practices that have the potential to contribute to the pay gap problem. Many employers, especially in the fast food industry, are using two techniques, no poaching agreements and non-compete agreements, to prevent employees from leaving for better paying jobs. This has a potentially negative effect on employee wages and leads to stagnation in wage growth. The reason that it contributes to a gender pay gap is that approximately 60% of the workers in the fast food industry are female. ¹³ The food service industry is the sector affected most directly at lower wage levels by no poaching and non-compete agreements, and the workers in this sector are more likely to be female.

Many major fast food restaurant chains, including Arby’s, Carl’s Jr., McDonald’s, Jimmy John’s, Auntie Anne’s, Buffalo Wild Wings, Cinnabon, Applebee’s, Church’s Chicken, Five Guys, IHOP, Jamba Juice, Little Caesars, Panera Bread and Sonic have all used a combination of two employment techniques—no poaching and non-compete agreements. ¹⁴ More broadly, many other businesses use them across the nation. Multiple states in the United States have begun to take action to prevent the use of these employment techniques, especially as applied to low-wage employees.

With regard to no poaching agreements, New York and Washington now have laws prohibiting the use of such agreements in low-wage jobs such as food service. Some states, approximately 20, have current laws that address, to some degree, the use of non-competes. ¹⁵ California, Oklahoma, Montana and North Dakota now completely prohibit use of non-compete agreements. Georgia, Delaware and Colorado hold that non-compete agreements are not enforceable, except with respect to employees in managerial positions.

Pay Equity Laws Abroad

Examining policies from various nations frequently offers insight into best practices around the globe on how to address a problem such as pay inequality. Iceland, for example, has consistently been at the top of the world rankings for workplace gender equality in the World Economic Forum survey. ¹⁶ Iceland passed a new law that makes it illegal for an employer to pay men more than it pays women, gauged not by specific job category, but rather in all jobs collectively at any employer, a concept known as an aggregate salary data approach. The new law applies to most companies (25 or more employees). The burden of proof is on employers to show that men and women are paid equally or they face a fine. The ultimate goal is to eliminate all pay inequities in Iceland by the year 2022.

Childcare is yet another approach to addressing the wage gap. The motive behind increased access to free childcare is to get women back in the workforce more quickly after childbirth so that they do not fall behind in terms of time on the job, which often factors into compensation. For example, Germany passed a law granting children the legal right to a place in free kindergarten from the age of 3 years. This has led one third of mothers, who could not otherwise afford childcare, to rejoin the workforce more quickly after childbirth. In Great Britain, the government offers up to 30 hours of free care for 3- and 4-year-olds to help mothers get back in the workforce. Laws such as these allow women who are the primary caregivers to experience fewer interruptions in their careers, a factor often blamed for the wage gap in the United States.

The World Economic Forum reports that about 65% of all OECD countries have introduced new policies on pay equality, including requiring many employers to publish calculations every year showing the gender pay gap. ¹⁷ Steps such as collection and reporting of aggregate salary data, or some form of early education or childcare, are positive steps toward eventually achieving the goal of wage equality.

Conclusion

U.S. employers in the private sector, as a group, have made only modest progress over the past 50 years toward ensuring that female employees receive equal pay for comparable work. Furthermore, current federal law does not adequately remedy the problem, as evidenced by the fact that a current pay gap exists more than 50 years after passage of the Equal Pay Act and Title VII. There is scant hope on the horizon for a new federal law in this area.

The time for a new approach to close the gender pay gap is now. This new approach consists of a combination of state laws focusing on three specific areas: (1) pay equity, (2) salary history and (3) no poaching/non-compete agreements. While a matrix of 50 different sets of state laws is not an optimal solution, it is quite likely the only option in our current political climate. There may be legal challenges to some of these new state laws, but overall, most legal experts agree that they are a valid exercise of state rights. ¹⁸