Closing the Gender Pay Gap

Career setbacks hit U.S. women harder than men, but a new study from the Smith School provides clues for closing the gender pay gaps that persist in corporate America.

The research, co-authored by Smith Finance Professor Liu Yang, debunks the argument that pay differences merely reflect the personal choices of men and women. More importantly, the research moves beyond the lingering debate toward a solution.

“We show that having female leadership in a firm dramatically mitigates the inequity,” Yang says. “The biggest impact on the gender pay gap happens when at least three of the top five executives in a firm — a critical mass — are women, although having women in midlevel or senior leadership roles also makes a difference.”

To eliminate the effect of voluntary choices from the equation, Yang and a co-author from the University of North Carolina at Chapel Hill examined layoffs following plant closures and compared wage changes between men and women in similar circumstances.

“We found that even when workers left the same job for the same reason and got hired by the same new company at the same time, women wage earners suffered more than men,” Yang says. “The pay gap widened during these involuntary transitions regardless of age, race, education or seniority.”

The only variable that mattered was having a majority of women in senior leadership roles at the new firms. Although still bearing a loss compared to men, women who landed at one of these female-led companies following a plant closure were able to cut the relative wage drop in half.

“Our evidence suggests that when women hold senior leadership positions, they cultivate more female-friendly cultures inside their firms and subsequently improve career prospects for women employees,” Yang says.

The question that remains is how to move more women up the corporate ladder so they can expand their influence. Currently, fewer than 5 percent of Fortune 1,000 companies have women CEOs.

“When more women break through this glass ceiling and attain top leadership positions, women lower in the corporate hierarchy also will benefit,” Yang says. “So will the organizations that harness and retain top female talent.”