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Room for Equity?

Nov 01, 2012

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Research by Liu Yang

Female corporate leadership can neutralize the gender wage disparity

Firms can take advantage of capable women leaders and position them to nurture a culture of gender equity and subsequent broader base of incentivized workers that feel treated fairly

Despite incremental gains the past several decades in America, pay for full-time working women lags behind that for men. The median disparity -- about 80 percent -- ranges from near neutral in low-paying service sectors to approaching 60 percent among high-level professionals, including the women holding just six percent of all CEO and top executive positions.

However, this small, undercompensated fraction of America's business leaders are creating a culture of change in companies they lead, according to recent research from Liu Yang, assistant professor of finance.

"When women hold senior leadership positions, they cultivate more female-friendly cultures inside their firms, and subsequently improve career prospects for those women,” says Yang.

Yang examined data recently made available by the U.S. Census Bureau’s Longitudinal Employer Household Dynamics program. She identified and tracked separate sets of workers laid off from the same firm and subsequently employed by another. The data included 461,449 workers in 9,244 closing plants across 23 states between 1993 and 2006. Yang looked at the differences in outcomes for groups of laid-off workers re-employed into the same firms, under male or female managers.

Yang and co-author Geoffrey Tate, University of North Carolina, measured changes in wages according to gender in the transition between employers. When women went to work for male managers, they started at their new firms with an average wage disparity of five percent. “However, the gap was cut in half in a female-managed company,” Yang says. “The results, at a minimum, suggest that women in leadership are necessary to implement a shift toward egalitarian hiring and compensation policies.”

It is often suggested that the gender-wage gap is a result of the female worker’s tendency to prioritize family ahead of career, limiting work hours or not devoting extra personal time in order “to get ahead.” Women are less productive and less competitive than men, goes the argument; hence, they make less money. But Yang’s research suggests that wage disparities are generated through management and depend on the leader’s gender.

Male-led firms paid women less than men in every wage group, Yang found, including workers over 55, for whom the constraints of family are less likely to differ by gender. Yang notes that even in women-led firms, pay for women ages 25-35 lags behind that for other female age groups, perhaps indicating that women of child-bearing age tend to focus more on family. However, “managers and shareholders appear to unfairly project such a quality to all women, in effect penalizing those in other age groups,” she adds.

Women in the highest wage brackets working in male-led firms had the highest wage disparity when compared to their male counterparts. “This further erodes the notion that gender wage disparity is driven by women sacrificing career advancement in favor of family,” she says. “Managerial bias, rather than lack of qualifications, fuels the gender wage gap.”

Yang says the study adds to the growing literature on the way “CEO style” and managerial policies affect corporate outcomes. Female leadership creates an environment that is more conducive to the advancement of other women within the organization. Female leadership also appears to create a gender-equal culture in which more workers feel treated fairly and more incentivized and loyal toward the firm. “Shareholders of male-led firms should take note of these implications,” she says.

“Female Leadership and Gender Equity: Evidence from Plant Closure” is under review from the Journal of Financial Economics. For more information, contactlyang@rhsmith.umd.edu.

Creating Wage Equity in Your Firm

How can company leaders maximize productivity through ensuring both female and male employees are treated fairly with equal growth and advancement opportunity?

  • Regularly review salaries, promotions and benefit increases to identify potential gender-based inequity
  • Ensure resources, such as work space and equipment, are allocated regardless of gender
  • Ensure deserving women are appointed to vital policymaking or leadership committees
  • Look for, and guard against, invisible gender biases in job performance reviews
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