The position of women in the modern economy presents a conundrum. Today’s women are better educated than men. They enjoy substantial legal guarantees to equal pay and, as of June 2024, a greater right to workplace accommodations for pregnancy. Yet, progress in shrinking the gender pay gap has stalled for more than two decades, and it is the most educated women who have fallen farthest behind. The gender pay gap for those with less than a high school degree is approximately 20%; for those with an advanced degree, it is over 30%, with an even larger gap for Black and Latina women. The conventional explanations for the pay gap do not ring true. So why has the position of the best-educated women in the economy stalled since 1990?
The primary explanation for the gender pay gap has always been women’s responsibility for children. It’s true, that once they have children, women face an even larger gender pay gap. But the pay gap is largest for the better-off women who enjoy the greatest access to quality childcare. The “child penalty,” the impact of having children on women’s compared to men’s workforce participation, shrank for the best-educated women during the same period pay gaps increased. A second conventional explanation is women’s occupational choices, and this is closer to the mark. Women are more likely than men to become teachers rather than engineers, and since 1990, engineering salaries have soared while teachers’ income has not kept up. Nonetheless, it is important to look within job categories. When women enter male-dominated jobs, the gender pay gaps persist, and in some cases worsen. Six of the top seven categories with the largest disparities in what men and women are paid involve finance, and the largest entry-level gaps are in tech.
It turns out that the parts of the economy that most pride themselves on being a meritocracy – and reward the supposed merit with higher pay – have starker differences between men and women than anywhere else.
Pay Gaps in the Winner-Take-All Economy
Instead of these conventional explanations, we found that women are falling behind because of what we call a winner-take-all economy. We distinguish the new WTA system from the classic economic meaning of the term “winner-take-all” as a structure that provides a disproportionately high pay-off for a single dominant player. Michael Jordan, for example, could single-handedly determine the outcome of a game to a greater degree than the number two basketball player of his era. It’s no surprise that he commanded greater income than the second-best player.
We are using the term “WTA economy” in a different way. The critical shift in the new economy is the ability of those at the top to allocate a much larger share of institutional resources for themselves. The winner-take-all era starts with the increase in CEO compensation, which rose approximately 700% from 1989-2022.
In 1989, the CEO to average worker “compensation ratio” was 60.4 to 1; it was 342.8 to 1 in 2022. CEOs and their top lieutenants thus receive a much higher percentage of corporate profits than they once did.
CEOs use high-stakes bonus systems to bypass traditional restraints and produce the immediate results that Wall Street values and that justify their pay. The new system pits employees against each other in the competition for larger bonuses. The system also looks the other way at how the successful produce their impressive numbers – whether higher than expected quarterly earnings at GE or Boeing or an awe-inspiring increase in the production of Teslas that for a time made Elon Musk the richest man in the world. With Musk’s personal wealth at risk from his other ventures, Tesla’s board of directors sought to approve a $47 billion compensation package for Elon Musk two months ago. That same week, amid much less fanfare, Tesla announced it planned to fire 10% of its global workforce. A month later, Tesla announced a recall of 125,000 vehicles due to product safety concerns – the product quality concerns Musk has admitted he ignored in the quest to beat production expectations. Musk’s compensation, which he justified as necessary to focus on Tesla rather than his other companies such as X or SpaceX, bears no necessary relationship to the well-being of the company, his employees, Tesla consumers, or the rest of society.
Women? In This Economy?
With this new dynamic of every “man” out for himself, women face a “triple bind”:
- If women don’t compete on the same terms as men, they lose – and those who win the quest for top pay are leaving everyone else behind.
- If women do compete on the same terms as men, they’re punished more harshly for their sharp elbows or legal and ethical misdeeds. While the system rewards those like Musk who can break the rules and get away with it, women are less likely to be hired for jobs that require rule-breaking perhaps because they are less likely to get away with it when they do. A study by Harvard business professor Mark Egan and colleagues showed, for example, that while women in finance commit less misconduct than men and cause their employers smaller dollar losses if they do, they are substantially more likely to be fired and less likely to be rehired than men committing the same misconduct. The company with the largest gender disparities in the country was Wells Fargo, the subject of numerous banking scandals; between 2005 and 2015, 69% of the women accused of misconduct resigned or were fired by the company in comparison with only 41% of the Wells Fargo men facing similar accusations.
The new corporate system, which has boosted CEO pay, and rewarded hedge funds and tech companies that, as Mark Zuckerberg said, “move fast and break things,” has fundamentally changed the ways that companies function. In the days of the organization man of the 1950s, executives bragged “my company is bigger than your company, my company is more innovative than your company.” Today, executives brag “my bonus is bigger than your bonus, my bank account in the Cayman Islands is bigger than your bank account.” Corporations have become extraction devices for their CEOs – and the “new boys’ club” that advances the CEOs’ objectives.
The same tactics, engineered by the winners in the corporate sphere, are remaking the political sphere. Breaking the rules and getting away with it is a measure of success. Those who succeed in business or politics believe they have the right to exercise the power they have amassed on behalf of the “new boys’ club” on their side of the fight rather than advance the country’s interests or the collective good. This attitudinal norm also explains why gender divisions in the political sphere have increased – and why reproductive rights are at risk.
Too many commentators respond to the gender-based wage gap by talking about the things women should be doing differently: leaning in, leaning out, and choosing not to prioritize their children or their families. We argue that the response to the stalled gender wage gap should not be to change women, but to change the system.
Lawyers and legislators need to find ways to challenge the injustices and ugliness of the abuse of power at the core of this economy. We all must find ways to empower collective action and to champion an alternative set of values. Women will prosper only when Elon Musk can no longer singlehandedly impose his will on a large swath of the economy. The CEOs of the past, who faced 80+ percent marginal tax rates, thought their fortunes rested with their companies, their workers, and their country. For women to advance, we need to rebuild the sense that we are all in this together.
