The Gender Pay Gap Remains Stubbornly in Place. Why?

Nicola Bianchi, assistant professor of strategy at Kellogg, had a hunch that a partial explanation for this mysterious slowdown could be found in a seemingly separate phenomenon: the increasing likelihood of older workers to stick around in top-paying positions.

In previous research, Bianchi has delved deep into how this trend involving older workers affects younger ones. His research has found that since the turn of the twenty-first century, younger workers’ prospects have faded compared with those of older workers, with younger cohorts less likely to receive promotions and to move into higher-paying jobs, for example, than older cohorts did at the same age.

“We suspected that the dynamics driving down the opportunities for younger workers could also explain a huge chunk of the trend in the gender pay gap,” Bianchi says.

But what does the aging workforce have to do with the gender pay gap?

Bianchi hypothesized that the drive toward more-equal pay over the past forty years might not actually be a story of women’s gains, but more a story of men’s losses. As older workers have come to hold more of the highest-paid roles in the workforce over the past forty years, young men—who were always more likely to be granted high-paying roles than young women—have found themselves displaced from firms’ top ranks and therefore earning less. This, in turn, lowered the pay gap, though only to a point.

In a new paper, this is precisely the story that emerges. Working alongside coauthors Jaime Arellano-Bover of Yale, Salvatore Lattanzio of the Bank of Italy, and Matteo Paradisi of the Einaudi Institute for Economics and Finance, Bianchi expanded the theoretical model of the labor market used for his previous work on age demographics so that it included gender as well. Researchers then compared the model’s outcomes with patterns revealed in detailed labor-market data from the United States, Italy, Canada, and the United Kingdom.

The researchers show that as the gender pay gap has shrunk over the past generation or so of workers, it has shrunk in a specific way: primarily among younger workers entering the workforce, rather than over career lifespans. In other words, a young woman who entered the workforce in 1990 might have had closer salary parity to her male peers than a young woman starting her first job in 1980—but for both women, the average differential between their salary and that of men their age will not improve over the course of their career (in part, perhaps, because caregiving demands like childrearing still fall disproportionately onto women).

What’s more, Bianchi and his coauthors show that since the turn of the new century, the most recent cohorts of entrants are not seeing gender pay differences narrow in this way. Since that time, any closing of the gender pay gap is due primarily to the retirement of older cohorts—whose salary differences were even larger.

Highlighting these true drivers of salary convergence yields a prediction that Bianchi acknowledges is a disappointing one: “We can’t project that the gender gap is actually going to close, if things don’t change,” he says.

Linking gender and age

Previous research investigating the gender pay gap—most notably by economist Claudia Goldin, who was awarded the 2023 Nobel Prize in Economic Sciences for her work in this area—has highlighted how the gap has shrunk over time primarily for new cohorts of workers and not over career lifetimes.

Bianchi and his coauthors, however, appear to be the first to link this pattern to the dynamics between older and younger workers.

Drawing from administrative and survey data that included over 376,000,000 observations of workers between 25 and 64 years old from four high-income countries, the researchers zeroed in on where 25-year-old men and women ranked over time in terms of pay among all workers. But contrary to the conventional wisdom that young women’s relative income ticked upward toward that of young men in these distributions over time, they noted that instead young men were actually falling toward parity with young women. In the U.S., for example, the average rank of 25-year-old men fell from the fiftieth percentile in the overall wage distribution in 1976 to the thirty-ninth percentile in 1995, while the position of 25-year-old women remained stable around the thirtieth percentile over that period. Since the mid-1990s, those positions have remained fairly fixed, with the average 25-year-old man still landing near the thirty-ninth percentile of the income distribution, and the average 25-year-old woman still landing in around the thirtieth percentile.

“At this point, there’s not a lot of room [given the growing presence of older workers among the highest-paying ranks] for younger-worker cohorts to close the gender gap,” Bianchi points out. “And so what is closing the gender gap after the mid-1990s is not actually the entry of new cohorts with lower gaps, but just the exit of older cohorts from the labor market, who tended to have much larger gaps.”

But why has the gap among men and women in younger cohorts of workers stalled in its current state? Bianchi says the reason has to do with choices made pre-workforce entry—specifically, in the selection of college major. For workers in the U.S., Bianchi and his coauthors analyzed American Community Survey data to predict average weekly earnings for college graduates based on major and determined that major-predicted entry pay accounts for roughly 80 percent of the gender pay gap that has remained since the mid-1990s among college graduates.

In other words, young men and women are drawn to (or nudged into) different fields as they’re choosing their areas of educational specialization, with men much more likely than women to major in lucrative STEM subjects like natural sciences, physics, mathematics, computer science, and engineering.

Reasons for optimism

Though the patterns revealed by the research team don’t show many gains for women since the 1990s, Bianchi insists that there is an optimistic note to be found in their findings.

A cursory glance at the gender-gap trend over the past forty years would suggest that policies that worked at first to exterminate the gender gap suddenly stopped working. But maybe they were never working at all—and it’s time to accept that and look for new levers to pull. This might mean steering women into higher-paying fields or raising pay in the sectors where they are most likely to work.

“There’s a lot of untapped potential for improving the condition of younger women—because what we’ve done so far doesn’t seem to have worked that well,” Bianchi says.