Categories: General

Debate over the persistent pay disparity between men and women isn't likely to abate anytime soon, but a new study sheds light on the issue—or perhaps tosses more fuel on the fire.

Motherhood is the culprit behind unexplained but significant wage losses for working women in North America, according to the TD Economics report, Career Interrupted—The Economic Impact of Motherhood. The report suggest this "motherhood gap" in wages largely occurs because of wage penalties mothers experience each time they exit and re-enter the workforce.

"Previous studies on wage differences by gender have found that roughly half of an observed 20 percent gender gap cannot be explained by the usual factors that drive wages, such as experience, hours worked, occupation, industry, age and the like," said report co-author Beata Caranci, deputy chief economist at TD Economics. "The research leads us to conclude that exits from the labor force, most often related to family or motherhood—not gender—are the culprit behind this 'unexplained' wage gap."

Women who exit the workforce to have children tend to experience an unexplained but persistent 3 percent wage penalty per year of absence. The report indicates this persistent wage penalty is as much as three times more severe for frequent exits (three or more) than it is for long absences. So while a depreciation of skills is an issue with any extended leave, it is not the headwind previously thought. Employers typically use the frequency of entry and exit in the labor force as a signal of attachment or commitment.

For example, a female employee who currently earns $60,000 in after-tax income, who works continuously for another six years, would see her real (inflation-adjusted) earnings rise to roughly $64,000, assuming a 1 percent annual gain. If this woman takes a single three-year stint out of the labor force before returning and working another continuous 20 years, she would incur a cumulative earnings penalty of over $325,000 in current dollars (assuming a 55 percent income replacement ratio in the first year of a child-related absence and a persistent 3 percent penalty per year of absence, in accordance with research findings).

Not All About Money 

Another contributing factor of the motherhood wage gap is that mothers returning to the workforce have greater responsibility on the home front, which makes work-life flexibility a key underpinning toward retention of women in the workplace. These changing priorities can mean mothers become less responsive to classic job incentives like wages and more attracted to work-life balance.

This is not to say women re-entering the workforce do not want responsibility. The report suggests that if employers want to attract mothers back to the workforce, they need to be prepared to offer jobs with fair wages as well as a sense of greater responsibility, in order to entice women to make the trade-off with household responsibilities.

Reducing the Gap

The report finds that there are ways for women to reduce the motherhood wage gap. Women incur far less financial penalty if they are able to build more experience before temporarily exiting, irrespective of the length of time they ultimately remain out of the workforce. Returning to the same employer also lends itself to a lower wage penalty, as social networks and other firm-specific skills remain better preserved.

Legislative Remedies Sought

The 1963 Equal Pay Act requires equal pay for equal work regardless of gender. Subsequently, equal pay advocates have backed additional legislation to eliminate pay discrimination against female workers, which they believe is the cause of the continuing pay disparity between men and women.

In January 2009, President Obama signed into law the Lilly Ledbetter Fair Pay Act, which resets the statute of limitations as each discriminatory paycheck is issued—creating the possibility that actions from years earlier could lead to a rash of new discrimination claims (see "Adjusting to the Ledbetter Pay Law"). In addition, Congress is considering further pay parity legislation that would make compensatory and punitive damages available as remedies in Equal Pay Act cases (see "Paycheck Fairness Act Reintroduced in Senate").