Labor supply imbalances, not just participation rates, may fuel wage gaps

Typically, gender wage gap studies look at participation rates to understand labor market outcomes, but analyzing sectoral labor force data may be more useful, according to a Jan. 9 report from S&P Global Ratings.

For North America, gender disparities between industries and output per worker create labor productivity gaps — or implied wage gaps — of 10% to 20%. The finding reflects only the distribution of workers across sectors, since the researchers assumed that men and women are equally productive within sectors.

“Importantly, closing gaps in participation rates between men and women isn’t all that’s needed to narrow the implied wage gaps,” the report authors wrote. “In our view, addressing the labor supply imbalance across sectors — by tackling biases or structural impediments that prevent both women and men from reaching their full potential — would be key to reducing the gender wage gap.”

As part of the study, S&P researchers investigated the number of men and women workers in each sector of the economy, as well as the output per worker across sectors broken down by gender, or the GDP for each sector from national accounts divided by the number of workers in that sector.

Based on 2019 data for the U.S., Canada and Mexico, relatively large implicit gender wage gaps of 10% to 20% exist across North America. The researchers looked at 2019 data to avoid large changes seen during and after the pandemic.

“We conclude that the participation rate approach alone is unlikely to paint a complete picture and that we also need a societal lens in any gender inequality analysis,” they wrote.

Based on employment shares and output per worker by sector, the average implied wage gap between men and women across the entire U.S. economy was about $50,000 in 2019, or around 21%. In most sectors in the U.S., the gap between men and women is small, and 10 of 16 sectors have a difference of less than 2%.

However, in construction and manufacturing, more employees are men, and in health care and education, more employees are women. These differences drive the largest wage gaps.

“Institutionalized notions that girls and boys should have different career paths are ripe for change,” the authors wrote. “More proactive options include encouraging and supporting young women to go into fields that are historically heavily skewed toward men.”

Gender wage gap studies and policies must also acknowledge other aspects of life, such as childrearing and tending to the home, says Harvard University economist Claudia Goldin, whose report on labor market participation and wage gaps won a Nobel Prize last year. Ongoing workforce research helps to uncover the underlying factors and barriers that need to be addressed.

Pay transparency laws are also building momentum around closing the gender wage gap, says Noreen Farrell, executive director for Equal Rights Advocates. Greater employer attention around gender and racial justice, as well as a major focus on attracting and retaining talent, have boosted attention and energy placed on pay equity.

Even still, while pay transparency can narrow the gender pay gap, it can’t close it, according to a University of Delaware study. Other factors, such as aggressiveness during negotiations, information-seeking behaviors and social comparison, appear to contribute to differences in pay as well.