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October 06, 2008

Economists Consider the Pay Gap

Catherine New
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This is the first in a series of posts exploring issues of careers and women that were discussed at the “Universities, Careers and Women” symposium on Sept. 19, 2008.

Historically, the women’s movement has focused on providing equal opportunity and access to education for women. By any measure, it’s been a roaring success: since 1980, women have comprised the majority of BA holders and more recently, the majority of newly minted MDs and JDs.

However, as more women than ever enter the professional labor force — equal with men in both numbers and stature — there remains a persistent fault line: the earnings gap. Complicating the equality landscape is how education, especially at the top tier, and so-called “opting out” are playing into — or out of — this gap.

The topic was the subject of last month’s research symposium, “Universities, Careers and Women”, hosted by Columbia Business School and the Sanford C. Bernstein Center for Leadership. Keynote speaker Harvard economist Claudia Goldin and her colleague Lawrence Katz presented their findings from their recent “Harvard and Beyond” (download PDF) study, the first to examine how the earnings gap plays out at the top-tier education level. (They co-authored The Race Between Education and Technology, published in June 2008.)

Goldin and Katz found that the earnings gap widens the further up the educational and professional food chain the female college grad goes. There is a 67% difference in earnings between Harvard men and women compared to 40% for college grads nationwide.

For MBA women, bottom line parity is especially elusive. Economist Marianne Bertrand from the University of Chicago’s Graduate School of Business also presented her research at the symposium. She found 60% earnings difference between female and male Chicago GSB alums 10 years out of school.

“There is a big earnings difference,” Bertrand said, “and it is affected by whether or not you have children. There are no signs that there is discrimination affecting gender gap in earnings, although there is a penalty for stopping out to raise kids.”

Katz found in his data that for MBA holders, any work interruption led to a 30% drop in earnings, and the longer the stop-out, the bigger the loss. A timeout of 15 to 18 months sunk earnings by 35% immediately; once lost wages were factored in, this decline reached 50%. (download presentation PDF)

An interesting twist, however, was the key role of spouse choice. According to Bertrand’s research, MBA women with high-earning mates were more likely to move off the fast track; whereas women with husbands not on the fast track were more likely to return to full-term office work sooner and purchase childcare. (download presentation PDF)

The symposium discussion went on to consider the issues that might close the gap and allow women to pursue career and family in a mutually beneficial fit. Mentoring and coaching, male behavior modeling (e.g. paternity leave), job sharing and career development programs are some of the issues that were discussed.

The takeaway: Women face steep economic penalties for stepping out of the labor force (for children, eldercare, etc.). This, of course, drills down right to the core of womenomics and has serious implications for firms competing for human capital and knowledge. A perplexing question remains at large: how to shift the corporate paradigm so that women not only make equal pay for equal work but have equal work and family opportunities at equal pay? The next blog post will consider some of the ways this is happening.

Photo caption: Left to right, panelists Marianne Bertrand, Lawrence Katz and Anne Preston

Photo credit: Leslye Smith