Closing The Gender Wage Gap Is Good Economic Policy

Ben Le Fort
Oct 9, 2018 · 4 min read
“man and woman in formal suit standing beside each other” by rawpixel on Unsplash

Progress Has Been Slow

Women make up nearly half the workforce but still only make 80 cents for every dollar that men make in similar positions. This is not exactly breaking news, we’ve known for some time that there is a significant gap between what men and women earn. While there has been some progress in closing the wage gap over the past several decades, that progress has been moving at glacier speed. If things continue at their current pace it could take until 2059 for the equal pay between men and women. And that’s the “Good news”. According to a 2016 report it could take until 2248 for Hispanic women and until 2124 for black women to earn equal pay compared to white men.

An important question to consider is what is the economic cost of the wage gap? Or put in a more positive light, what are the potential economic benefits of closing the gender wage gap? That is one of the questions that a report from The Institute for Women’s Policy Research set out to answer.

Important Questions

The report sought to answer five primary questions:

  1. If women had equal pay, how much would their earnings and household income increase by?
  2. How much do women and households currently lose to due to the wage gap?
  3. How many children benefit from closing the wage gap?
  4. How many families would be lifted from poverty by closing the wage gap? and;
  5. What are the potential impacts that equal pay would have to the broader U.S economy?

The Economic Benefits Of Closing The Wage Gap

The study examined the 74.6 million working women in the U.S and found that the current average income for working women is $38,972 per year. They then calculated what their wages would be if they were equal to men, the answer is $45,842, a $6,870 difference. I should point out that in their analysis they assume men continue to earn the same income they currently earn.

This would also raise the average annual household income of families with female earners to over $100,000 per year, which is an important psychological milestone for many of us. So how much new income could be created in this utopia where men and women earned the same money for the same work? $512.6 Billion!

This would have massive positive impacts on the U.S economy. As I have written before, consumption accounts for around 70% of U.S GDP. Anyone who’s taken an introductory economics class might recall a term called Marginal Propensity to Consume (MPC), which tells us if you give a person a dollar how much of that money will the spend (consume) and how much will they save?

To put it simply, if you give a dollar to low-income individuals they are much more likely to spend it then if you gave it to a rich person, who would likely save it because they have all have already bought everything they need (and much more).

If you gave $6,870 to a lower income individual they would be much more likely to use that money to buy a new car, buy more groceries, pay their rent and buy other things that contribute to GDP.

Source: Institute for Women’s Policy Research calculations based on the Current Population Survey Annual Social and Economic supplements, 2014–2016, for calendar years 2013–2015; all in 2016 dollars.

Reduced Poverty

You know what else increasing the income of every working woman by $6,870 could accomplish? It would Pull 3.1 million Americans out of poverty. As we might expect, closing the gender wage gap would have the largest impact on single working mothers who earn the lowest annual income of any other group of working women, earning an average of $32,950. This group of working women has the highest poverty rate at 28.9%. Closing the gender wage gap would cut that in half to 14.5% and pull more than 1 million out of poverty.

Equal pay would not only benefit working women but their children. The report estimates that if the gender wage gap were closed nearly 2.5 million would be lifted out of poverty.

Source: Institute for Women’s Policy

Clearly closing the gender wage gap would have massive economic and social impact. Why has progress been so slow and what type of policies could effectively close the gender wage gap? Stay tuned as I will be exploring these questions in future articles.

Making of a Millionaire

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Ben Le Fort

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Sharing the money lessons I’ve learned on my journey from debt to Financial Independence. Email me for freelance & Business inquiries:

Making of a Millionaire

Stories about money, personal finance and the path to financial independence.

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