Closing the Wage Gap: Examining Inequality in Earnings - Research Paper

Introduction

The wage gap is the statistical indicator often used as an index of a worker's earnings relative to that of their colleagues. The wage gap compares on earnings based on gender, race, ethnicities or even positions in an organization. Wage inequality differs from income inequality in that it is a small part of the latter which might also revolve around inequality in salaries, interest on savings, rents, profits from selling something for more than you acquired it among other. This paper seeks to expound on wage gap disparity. It will examine the pay gap in various sectors as well as the reasons for the gap.

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Gender Wage Gap

Graf, et al. report that in 2018, women earned 85 percent of what men earned. The further mot that one in four employed women said they had earned less than a man in the same job category, this is compared to just 5 percent of women who report having earned less than a woman in the same period. The pay gap in gender has various explanations. Women anticipate shorter and irregular work lives hence incline to accrue less labor experience than men.

Additionally, this makes them have a lower motivation to invest in the market targeted formal education or on-the-job training. Consequently, the lower labor investment lowers their earnings relative to those of men. Moreover, women bear the burden of childcare and household work which significantly reduce their commitment to action. The fact that pregnancy or family obligation leads to a loss in pay gains as a result of stepping out of the workforce. Graff et al. point out the gender pay gap is also influenced by discrimination which is a persistent reason with women being concentrated in low paying jobs even when they are qualified to take higher positions. Their research cites that 42 percent of women experienced discrimination in the workplace because of gender. The current trend in the US on the gender pay gap shows that the difference is narrowing.

Race/Ethnic Pay Gap

The wage gap disparity has also been reported along with race and ethnic lines. In America, the gap varies strikingly from one group to another. Kochhar and Cillufo (2018) note that Asians are the highest earning racial and ethnic group in the US although all Asians do not share not the status. The report notes, Asian adults earned $51288, compared to $47958 for whites, $31082 for blacks and $30400 for Hispanics. The wage gap disparity persists and in some cases wider than before with blacks and Hispanics earning 65 percent as much as whites. The wage gap disparity along racial lines can be attributed to dissimilarities in the characteristics of employees such as educational level and the share of foreign-born. Educational standards are higher among Asians and whites while the population of foreign-born citizens is greater among Asians and Hispanics.

Other reasons accounting for the disparity can be traced to historical legacy and current impact of discrimination. The racial wage gap is accounted for by occupational disparities which shows that white and Asian Americans are likely to be in executive and managerial positions compare to black and Hispanics who are likely to be in manual jobs as laborers, fabricators, and operators. Additionally, the globalization of the US economy in the 1970s and 1980s meant that manufacturing was exported which adversely affected the Hispanics and blacks concentrated in this sector (Kochhar and Cillufo).

CEO- Worker Pay Gap

The wage gap disparity has also been reported between the executive wages in comparison to what employees earn. Rembree, notes that a while a typical CEO made 20 times the salary of his or her average worker the figures in 2017-from S&P 500 index firm- show that the gaps stand at 316 times. Rembree notes that CEO pay was $13,940,000 a year compared to that of an average production worker who was $38,613. The huge earning by the CEO is justified by the fact they make their payment through incentives since there exists a base pay which the Internal Revenue Service (IRS) has imposed a tax restriction on excessive compensation. It thus follows that the 63incentives arise from payment on meeting performance objectives, and annual bonuses.

Moreover, to ensure that the interest of the executives is aligned with those of the shareholders, they are granted a restricted stock award or stock options. To guarantee that the executives do not face bankruptcy after retirement they are accorded benefits such as executive insurance plans and supplementary executive retirement plans (SERPs). CEO-worker pay gap forms one of the most contentious issues with some companies such as Walmart, McDonald's and other highly profitable companies reporting ratios of more than 1000 to 1 (Rembree).

Wall Street Bonus vs. Minimum Wage Earnings

In a 2016 report by Institute of Public Police authored by Sarah Anderson, wage gap disparity was also evident in the Wall Street. The report notes that $25 billion in bonuses was doled out to 172,400 Wall Street employees who were twice the combined amount earned by 895000 Americans who worked full time. The Wall Street bonus payout violates the basic norms of fairness and is liable to the increasing wage gap disparity in American society. Wall Street employees receive bonuses on top of already huge salaries. In the meantime, low wage workers struggle to meet basic needs.

Labor Unions Decline

Dynarski, notes that another factor widening the income divide in the United States is the decline of labor unions. The share of workers represented by unions has declined to less than 11 percent since the 1950s peak. Moreover, executives have fought unions in their favor hence increasing income inequality. Unions play a crucial role in lobbying for higher minimum wages as well as pushing for executives to lower their salaries. Not only do their efforts encompass wage increases but also other associated channels such as access to health care and social welfares which can harm the wages indirectly.

Recommendations

In the United States, the Equal Pay Act of 1963 prohibited employers from paying unequal wages to men and women who hold the same position or do the same work. The legislation has had the impact of raising salaries of women relative to those of the men since its enactment. Following amendments, such as that of 1972, including executives, administrators, professionals, and outside salespeople. However, EPA permits differences in wages based on seniority, the quantity of production, merit, and quality of production as well as other difference not based on gender. Other legislation due to be passed such as The Paycheck Fairness Act of 2015 seeks to clarify the other "factors" other than gender

Introduction of ethnicity pay reporting such as those advocated for in Britain will curtail wage gap disparity. The reporting calls for large companies and public sector organizations to publish data showing whether they pay their employees fairly. The step will enable employees to see where pay gaps are most significant and hence encourage leaders to take stronger action to close the gap. Moreover, the publishing of the data will push for an increase in ethnic minority representation in the workplace.

Rules such as those introduced by the US Securities and Exchange Commission's CEO pay rule are important in addressing executive- employees wage gap disparity. The law requires public companies to publish the ratio of the median annual compensation of all employees to the yearly total of the CEO. The rule is designed as a measure to monitor and keep in check the compensation ratio. Restriction in the Wall Street bonus payout needs to be stringent to tackle the wage gap disparity. For example, the European Union limit the bonus of key bank staff to no more 100 percent of their basic salary and 200 percent if shareholders approve (Anderson). Wall Street bonus reforms such as those in 2010 Dodd-Frank financial reform prohibited financial industry pay packages as they could foster inappropriate risks. Moreover, the restrictions also delayed the timing of bonuses to up to three years for bankers to collect half of their annual bonuses. The reforms need to be improved as they are have done little to tame inequalities.

The paper has examined the wage gap disparity across races, gender, positions, and institutions. The paper has also given an overview of the reason contributing to inequalities in these sectors. Moreover, though not associated with any factor, decline unions have played a role in increasing wage gap. The recommendation outlined in the paper will play a critical role in curbing wage gap disparity.

Works Cited

Anderson, Sarah. "Wall Street Bonuses v. Minimum Wage Earners." Home - Institute for Policy Studies, 26 Mar. 2016, ips-dc.org/wp-content/uploads/2016/03/Wall-Street-bonuses-v-minimum-wage-2016-FINAL.pdf.

Dynarski, Susan. "Fresh Proof That Strong Unions Help Reduce Income Inequality." The New York Times - Breaking News, World News & Multimedia, 8 July 2018, www.nytimes.com/2018/07/06/business/labor-unions-income-inequality.html.

Graf, N., et al. "The Narrowing, but Persistent, Gender Gap in Pay." Pew Research Center, 22 Mar. 2019, www.pewresearch.org/fact-tank/2019/03/22/gender-pay-gap-facts/.

Hembree, Diana. "CEO Pay Skyrockets To 361 Times That Of The Average Worker." Forbes, 22 May 2018, www.forbes.com/sites/dianahembree/2018/05/22/ceo-pay-skyrockets-to-361-times-that-of-the-average-worker/#415f273b776d.

Kochhar, R., and A. Cillufo. "Racial and Ethnic Income Inequality in America: 5 Key Findings." Pew Research Center, 12 July 2018, www.pewresearch.org/fact-tank/2018/07/12/key-findings-on-the-rise-in-income-inequality-within-americas-racial-and-ethnic-groups/.