Why the gender pay gap holds back productivity

A U.S. Census Bureau report on how much income Americans pulled in last year, how much the median household income changed from 2024, and how that breaks down by race and gender, is scheduled to come out Sept. 15.

One data point to keep an eye on is the wage gap between men and women, which has been widening since 2023. The causes include return-to-office orders — which put strain on women who are caregivers — as well as weaker demand for some of the lower-wage roles that were hot during the pandemic and which women tend to dominate, including administrative work and education.

The widening gender wage gap is making the economy less productive, primary because it forces some women out of the labor force.

“If I’m a woman looking out to the marketplace to find a job, I already know that I’m starting from a lower level,” said Nicole Cervi, an economist with Wells Fargo.

Cervi said anyone who wants to enter the workforce has to know they’ll earn enough money to make it worth working — which often means enough to pay for childcare or elder care. The average cost of daycare in the U.S. can exceed in-state college tuition.

“And because we have this gender pay gap already in existence, for a lot of women, if they go out to the market and find a job, they’re not even going to earn enough to cover some of those unpaid responsibilities that they have,” Cervi said.

So some women decide that getting a job doesn’t work financially with their caregiving obligations. That means there is a lot of untapped potential out there. Cervi said from the perspective of an employer it’s untapped productivity: skilled workers who could be boosting output, but aren’t.

“And so if you, let’s say, can’t get a really skilled engineer, to help push the frontier of something that you’re building, then that’s just going to slow down your output production in the longer run,” Cervi said.

The gender pay gap also has an outsized impact on the care industry.

“One thing we know about the care workforce, it is predominantly female,” said Chloe Gibbs, a senior economist at the W.E. Upjohn Institute for Employment Research.

Gibbs said care work also tends to be underpaid. And as a result, the care industry sees a lot of churn, as workers find better-paying jobs, or drop out of the workforce.

“And that undermines the stability of the care provided, because you have this constant turnover that is particularly pronounced, and we would expect that in a low-wage industry,” Gibbs said.

Care work is infrastructure that supports the entire economy, because it allows people to go to work and be productive. So an unstable care workforce is a problem.

“When you have an unstable labor force in childcare, that undermines everyone else’s ability to work, parents’ ability to work, who have young children,” Gibbs said. “They really rely on the stability of their childcare arrangements.”

And when parents can’t find that stability, mothers are more likely than fathers to drop out of the labor force.

“Essentially, that is lost value from the skills and the talents that that worker would bring to the labor market,” Gibbs said.

The gender pay gap also has an impact on workers’ kids.

“It lowers investments in children, and therefore long-run productivity growth,” said Stephanie Seguino, emerita professor of economics at the University of Vermont.

Seguino said women tend to spend a much higher percentage of their income on their kids. So when women earn less than men, children get fewer resources.

“It could be enrichment activities, for their healthcare, for stable housing, all things that affect children’s cognitive development, their creativity and their innovativeness in the long-run,” Seguino said.

That means underpaying women, Seguino said, limits economic growth for generations.