NerdWallet's Smart Money Podcast - Why Moms Face a Pay Penalty — and What to Do About It

Episode Date: May 14, 2023

Becoming a mother can transform your life: providing a new sense of purpose, expanding your family and, potentially, limiting your earning power. In this episode, Sean and NerdWallet writer Amanda Barroso dig into the motherhood pay gap, including what it is, where it comes from and how to fix it. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Happy Mother's Day, Amanda. Thank you, Sean. I'm sitting here in my closet where I record all the podcasts, and my toddler is right outside the door. I'm feeling about 20 months pregnant with our second. So needless to say, I'm feeling very much like a mother right now. You are channeling and embodying Mother's Day right now. Yes, yes.

So how are you celebrating your day? So aside from a delicious brunch cooked by my husband and some family time, I'm setting aside some time to chat with you about the gender pay gap and how it widens for women once they become moms. So I think we really need a multi-pronged approach to this. Like we need stuff to happen at the employer level. We need stuff to happen at the state level. We need stuff to happen at the federal level. Welcome to the NerdWallet Smart Money Podcast. I'm Sean Piles. I'm here with NerdWallet writer Amanda Barroso for a special Mother's Day episode about the gender pay gap and the motherhood penalty

women face. Welcome back to Smart Money, Amanda. Hey, Sean. I'm happy to be here with you. You know, the gender pay gap probably isn't the first thing that comes to mind when people think about Mother's Day. They're probably thinking about flowers, brunch, chocolate. But this is something that's personal to me. Aside from being a mother, I've been thinking about and researching this topic for a long time. So before I came to NerdWallet, I got my doctorate in women's and gender studies and then worked in D.C. for about five years at nonprofits that researched this issue. So it's been on my mind for a while. Recently, one of my former colleagues at the Pew Research Center published a report about the sort of like just persistent and enduring nature of the gender pay

gap. And it turns out that parenthood is part of what's made this thing stick around for so many years. The thing about the gender pay gap, though, is typically women never really recover from it financially, especially once they become moms. So the topic's on my mind, especially as I prepare to have our second child in just a few months. All right. So in this episode, you're going to help us understand what the gender pay gap really is, why it's worse for mothers, and maybe even talk about some solutions to what can feel like an insurmountable problem. That is the goal, at least. Okay. Well, let's start with the basics. Can you lay out for us what exactly the gender pay gap is? Sure.

So simply put, the gender pay gap is the difference in earnings between women and men. Every year, researchers are updating their calculations. So one source of data from the National Women's Law Center shows that women who work full-time and year-round typically make 84 cents for every dollar that men make. For moms, this drops to 74 cents for every dollar that fathers make. $17,000. That's enormous, Amanda. I mean, just think about all that a mom could do with that amount of money. Totally. I mean, it's not pocket change for Target Run, you know, that's for sure. The reason that I wanted to make this podcast actually is because it was unclear to me what it is exactly about motherhood that penalizes women financially, but then on the flip side,

rewards men who become fathers at the same time. In research, this is something called the fatherhood bonus. So I'm just thinking like, what's going on here, right? Okay. So just to make sure that I'm following you, there's the motherhood penalty. And then there's also the fatherhood bonus. These terms seem pretty self explanatory. But can you give us a quick definition of each so that we're all on the same page? So the motherhood penalty is the earnings hit that women take when they become mothers. Sometimes it's because they have to like step back or scale back from the workplace to become primary caregivers. And of course, that impacts their overall earnings. But for men who become fathers, the data shows that they get a boost in their earnings, actually. And this may be because employers are more likely to see fathers as

providers, offer them more hours, more opportunities. and the fathers can then take advantage of that because, you know, surprise, they have someone at home taking care of the kids and the housework. Yeah, got it. I think there may also be psychological and cultural pressures going on as well. A lot of dads may feel like it's important to step up and work harder once they have a kid, or they're afraid that if they do try to take time off and prioritize child care, that they'll be judged harshly and their careers might suffer. Totally. So to understand the origins of the parental pay gap, I talked with Jasmine Tucker. She's the vice president for research at the National Women's Law Center. And that's who you heard at the beginning of the episode. So what we see in the data is that women face a wage gap,

like sort of right as they begin their careers, but it's smaller, right? So people are just graduating college. People are just graduating high school and entering the workforce. You know, women are making 90 cents for every man's dollar. So the playing field is more equal when young men and young women are first starting their careers. Because, you know, you think about it. They're both starting at entry-level positions as sort of at the lower end of the pay range. But then something starts to happen as they enter their 30s. And this is where you see that motherhood penalty and the fatherhood bonus emerge that we were talking about earlier, Sean. So to understand this, I talked to Rakesh Kuchar. He's a senior researcher at the Pew Research Center, and he's the one who wrote the

report that I mentioned earlier. So I wanted to learn a little more about this window of time and what exactly happens to mothers and fathers. The most significant increase in the pay gap happens around age 35 to 44. Beyond that, it pretty much stays steady. So it doesn't rebound back to pre-parenthood days, but it stays widened. Parenthood widens it, and that widening does not go away. Okay, so what Rakesh is saying is that not only is there a gender pay gap, but that this gap widens between mothers and fathers between the ages of 35 to 44. So under one roof, you could have one parent reaping the benefits of this gap

while the other's pay is suffering. Right, and that gap never closes, even as women age. Plus, this data isn't even factoring in same-sex households. I mean, another thing that we should also clarify from Rakesh's work is, you know, his research shows that women with kids at home earn less than women without kids at home. And here's where the fatherhood bonus really comes into play. Fathers earn more than other workers in general, including men without children. And I know there's a ton of data out there around the pay gap, but I want to

zoom out a little. There are still a lot of people who don't think the pay gap is, well, real, or they believe that women simply pick fields with lower wages, things like being a teacher or a service job, while men happen to choose jobs with higher earning power, like something in tech or banking or engineering. Right. There's obviously a lot more at play than men and women just simply choosing different jobs. The true meaning of occupational segregation takes into account how a particular group, so here we're talking about men and women, how they're overrepresented in a certain job. And this is often due to social forces and pressures or policies that create this division. It's certainly more than just like men and women just happen to choose these separate and distinct fields, right?

Yeah. Well, the other thing that critics of the gender pay gap dispute is the role of discrimination. Did the experts that you talked with get into that at all? Yeah. On the question of whether the pay gap is real or not, Jasmine was just like, look, here's the data. We see a wage gap in 94% of occupations. We see a wage gap when you look at different education levels and especially like women of color gaining higher education, like Black women and Latinas, they're still losing millions of dollars over a career compared to white, non-Hispanic men. Okay, so Jasmine has the data to back up the wage gap. But what about the occupational segregation

and discrimination question? Did she or Rakesh talk about that? So Rakesh was basically like, look, occupational segregation is a thing, right? It is an undeniable thing that happens, but so is discrimination. But that last piece is just a little harder to precisely measure.

Yes, so both are factors. One, as you noted, is easier to measure than the other. The easier one to pick up on is what are the types of jobs men and women do or what are their occupations. And there are distinct differences that continue to linger. For example, women, much more so than men, are represented in education or health care jobs. Men, on the other hand, are more likely than women to be in STEM jobs or in managerial occupations and some other occupations. And the differences have narrowed over time. But this narrowing also halted around the turn of the century. The other side of the equation you mentioned is discrimination. That is where an employer

may treat men and women differently at the workplace or during the hiring process itself. Many experiments have revealed is a likely factor. So there is evidence of discrimination, but precisely how much and where it happens, that's harder to measure. All right, I'm glad we cleared that up. But what I'm wondering about now is, where does this pay gap come from? There are people behind the decisions

to pay a mother one amount and a father a different amount. What's actually driving the gender pay gap? Kinochana asked Rakesh that exact question. Here's what he said. In a survey we did accompanying this report, we find that women with children at home are much more likely than men to feel a great deal of pressure to focus on family needs. So partly a result of these pressures, and perhaps partly by choice, it's hard to sort out or disentangle these two forces. What we see is that with the onset of motherhood, when about two-thirds of women ages 35 to 44 have children at home, we find that they tend to retreat from the labor force.

Labor force participation decreases. And at the same time, women tend to work fewer hours on average per week. So in effect, what this means is parenthood impacts the amount of workplace experience women acquire relative to the workplace experience that men are able to acquire. And men are seen to work harder because they actually increase the number of hours they work on average per week, and they become more active in the labor force when they become fathers. So, partly through a withdrawal on the part of women and partly through more engagement on the part of men, we see the gender pay gap widen around that time. And this increase happens most noticeably around ages 35 to 44.

So as Rakesh mentions, there are significant cultural forces involved here, but I wanted to hear a little more from Jasmine about how this plays out, especially around notions of who is a breadwinner. What I think is at play are a couple things. So, first is sort of outdated notions about who's caring for families, who is dedicated to the work, who needs the money, right? And so if you think about dads in the workplace, you're like, oh, well, so-and-so just had a kid. Like, you know, we need to put him up for promotion because he's supporting three people now instead of two, whatever. And I think that despite all of this evidence that shows that women are breadwinners in their families, either primary or co-breadwinners. There is sort of this outdated notion that when women have kids,

they become less dedicated to their work, right? And so they have to leave at 4 p.m. to go pick up kids. And so that means that they're not dedicated to their work. Forget that she's answering emails or whatever she's doing like late at night after the kids are in bed. Child care is definitely playing a big role here. If child care is unaffordable and it's making up large shares of women's earnings, they might be more likely to leave the labor force. That point about child care really hits home. And, you know, it's something that we've covered together on the podcast before, Sean. The other thing that she mentions are caregiving responsibilities, which when you think about it, they only multiply with each child that parents have, right?

Yeah. And we know that women tend to take on more caregiving responsibilities than men too. So women are being paid less for the same job and also having to shoulder more work around the home. Exactly. So this is what I wanted to know. Does the impact of the gender pay gap then intensify with every child? Here's what they had to say. Let's hear from Rakesh first. In the past, we did look at what happens to work effort depending on the number of children you have at home. And the more children you have, the greater the number of hours worked by men or fathers and the shorter the work week among women. So having more children definitely has more of an impact on engagement with the workforce on either side, negatively among women and positively, you might

say, among men. So with the birth of each child, mothers are withdrawing from the workplace for one reason or another, while fathers are putting in more time. But what does this mean for actual earnings? Here's what Jasmine said. There are some studies that show there's like a 7% drop in earnings per kid that you have for women. But we see sort of the opposite when it comes to men. When they have kids, their earnings tend to go up. And so I think over time, this sort of creates this divide that widens, right? Like it just continues to widen and get worse over time. So is it just sort of like a general issue with like the imbalance of division of labor? So women are the ones who are assumed to be doing the caregiving. So they're the ones leaving work early. And we saw women out for longer periods of time, right? So we know that early days in 2020 and 2021, we saw lots of women remain out of the labor force because they were providing unpaid care for their children. And so if somebody needs

to take time out of the labor force, who's it going to be? Jasmine has a good point here. The pandemic really upended the working lives of many mothers across the U.S. Because when you think about it, Sean, so much of that infrastructure that they relied on to be workers, right, was just no longer available. So things like child care, in-person schooling, after-school activities or weekend activities, things like that, that made their working lives possible were just unavailable. Well, what's interesting is that in recent months, women have returned to work. In February of 2023, the number of women in the workforce was higher than before the pandemic. But that was after a steep, sudden drop off early in the pandemic, and then a slow climb back up over the past three or so years. You think that that time away from work would have an impact on their earning potential, right? Exactly. But the thing is, once women leave the labor force, it's really hard for

economists to understand what it means for their future earnings, even if they return to work again at a future time. And this is something that Rakesh talks about in his report. Now, in our data, we only observe the earnings of people who are working, who are employed. And if we look at just employed men and women, we are not anymore looking at women who have withdrawn from the labor force. Some will have withdrawn permanently. Some will have withdrawn only for two, three months or four months, and some may be for two, three, four years until a child goes to kindergarten or elementary school. So there's going to be a varying degree of losses felt by women. And what we do not observe is this loss in potential earnings. What might have been the

earnings of a woman who took, say, five years off from work. We also do not know what might have been the earnings of women who permanently withdraw because they decided, for whatever reason, to be at home to look after kids until they're off to college, maybe, or never return to the labor force. So there is some loss in the potential earnings of women, their lifetime earnings that we are not able to observe. Rakesh points to a blind spot in collecting pay gap data on women, especially as they become mothers and exit the workforce for a time. And as Jasmine mentioned, the pandemic has been especially hard on mothers' employment. So I think early in the pandemic, there was a lot of

worry about moms and women just sort of generally leaving the labor force and what that would mean for their careers. Right. We saw like 20 million plus jobs just completely gone in two months time from February to April 2020. And I think, you know, sort of initially in the early days of the pandemic, there was, I think, a really scary moment of like, what's going to happen to the wage gap? How is this going to impact it? How is this going to set women back? And so I think the data from the Census Bureau over the last couple of years has just been, it's been hard to compare it to previous years, right? Because with the labor market looks completely different than it did in 2019, which, you know, we would have to consider pre-pandemic.

So what we have seen since 2020 is some closure in the wage gap. And part of that is because we saw a lot of the jobs that were lost were low-paid jobs. So who was left, right, in the pool of people working full-time and year-round were higher-paid workers, right? So we lost all these women in low-paid jobs, and so that appeared to shrink the gap. It seems like both the gender pay gap problem and the motherhood penalty that sort of exacerbated are really complex. Yeah, I mean, there's not a one-size-fits-all solution, you know? I think Rakesh put it really nicely. So it's that drilling down to individual choices and cultural pressures and family pressures and workplace issues. It's very

heterogeneous. It's very diverse. It's very difficult to perhaps eliminate with a sweeping policy. All right. Well, that does seem like kind of a tall order, but I also see a glimmer of hope in Rakesh's answer. There are a number of different areas we can mine for solutions on an individual level, family level, culturally, and in the workforce. I know it seems bleak. And in a lot of ways, these issues are so much bigger than an individual mother can solve on her own. Trust me. I feel the weight of this. You know, I'm a mom. I am expecting another one. And I obviously care about my earnings.

But you're right. There are some things and some ways that we can move forward and continue to make progress in closing the gap for mothers. So I dug into this a little bit with Jasmine. So I think we really need a multi-pronged approach to this. Like we need we need stuff to happen at the employer level. We need stuff to happen at the state level need we need stuff to happen at the employer level. We need stuff to happen at the state level. We need stuff to happen at the federal level. So we could do things like pass equal pay bills like the Paycheck Fairness Act at the federal level.

There is right now a lot of momentum in state legislatures this year around like pay salary transparency bills, which is great because it essentially says like if you're posting a job, you have to provide a range in the salaries. The data shows that women like underestimate the salary and men ask for the move and right, which is which sort of contributes to this. So what are some things that employers can be doing? It does seem like some of the issues here are revolving around how managers or HR or people in control are thinking about motherhood and fatherhood, right? I think that there's a lot that employers can be doing. They can sort of be doing internal audits of like, how much are they paying people by race and by gender?

And what does that look like? And doing, you know, some course correction there. I think that they could be hiring more women and in particular women of color in C-suite positions and in other leadership roles. Because if you have a workplace that only is made up of men, and in particular white men, I don't see how those workplaces are going to be family friendly or actually meet the needs of moms in that workplace. Your earlier point about employers examining their own pay practices seems really important. And I don't want to overlook your point about race either. I mean, the calculations that you've done show that Black, Latina and Native women are

making even less than that overall 84 cent per dollar figure that we talked about earlier. According to your data, Black women make 67 cents for every dollar and Latina and Native women make 57 cents. And again, this is compared with white non-Hispanic men. And that's just the overall number, not the number for moms of color. So that means their total annual losses are much higher. Yeah. I mean, it's life changing money. It could be a down payment for a house. It could be an investment in your education so that you can move from your low-paid field to a higher-paid field. It could be savings toward kids' education funds. There, I think, are so many wealth-building opportunities that women and moms are missing out on because they're being paid less.

What other policies can be implemented or changed to help close the gender pay gap for moms? A unionized workplace is good for women. We see wages go up, we see wage gaps decrease. Workplaces adopting family-friendly policies alone won't fix the pay gap, though. Rakesh even points to other European countries where these policies are part of workers' everyday lives already and found something interesting. You know, when we look at Scandinavian countries such as Denmark, where family-friendly policies are commonplace, you still see that parenthood drives an increase in the wage gap because men and women react differently to parenthood. This reaction to parenthood Rakesh talks about could point to a bunch of things.

I think some of it's likely a response to cultural and social pressures that fathers face. You know, thinking about putting in more hours in the office, what that might mean. It might mean seeing your child less, added stress. There's this financial piece of the fatherhood bonus that seems like a positive one, but still there are costs. So we've talked about potential solutions at the state and federal levels, but there have to be things that parents can push for in their own workplaces, right? I think you're exactly right, Sean. Okay, let's look at NerdWallet, for example.

The company does offer a really generous paid leave policy around five months leave at 100% pay, which not only means that parents can bond and care for their newborn, but they also don't have to like dig into savings to cover time away from work. I mean, financially, that's huge, right? But in addition to that, all new job ads that NerdWallet puts out provide a salary range, which means that potential candidates have a leg up. So when they get asked that dreaded question that we've all been asked in a job interview, like, what's your desired salary? They have some information to work with, right? They're not pulling a number out of the air. So as of March 9th, actually, eight states have made salary transparency a requirement on job ads, and 15 states are

considering similar legislation. And that's according to the Center for American Progress. So I think that that's a step in the right direction. NerdWallet also recently started providing employees with the salary bans for their job title based on their title and location. So like I can log in and see where I fall in that pay ban. And when it comes time for review or negotiations, I just have like a little more leverage. I have more information and knowledge that I can work with. I think these last two things are huge, especially for women. So studies have shown women tend to undervalue themselves. They ask for less in negotiations or when they're starting a new job. And in this case, I think for women, knowledge is power.

Right. And it just goes to show how big an impact one company's policies can have on the way you can structure your life, your family, your ability to earn money. And it kind of gets back to the fact that it's a little unfortunate for many workers that they don't have those sort of benefits where they work. And we should state that Amanda was not told by NerdWallet to say any of that. It's just a legit perk that's made a big impact on her ability to balance motherhood and having a career. Is that right? And it's absolutely right. But the thing is, there are templates for this, right? There are companies who are employing some of

these policies and measures, and we can learn from those things. I think a big thing is like just talking about money, talking about these policies. You hear that your friend or your neighbor, that they work at a place like Darlene, great. Let's figure out how they're doing it so I can bring that back to my employer and see what I can make happen for myself and my colleagues, you know?

Exactly. Well, Amanda, thank you so much for coming on the Smart Money Podcast to help us explore this really important topic. I appreciate it. I always love being here and talking about these things with you, Sean. And I am very much looking forward to enjoying that five-month paid leave and catching you

on the flip side of that. All right. Well, I'm expecting many baby pictures while you're out. Absolutely. And that's all we have for this episode. Do you have a money question of your own? Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD.

You can also email us at podcast at nerdwallet.com. Also visit nerdwallet.com slash podcast for more info on this episode. And remember to follow, rate, and review us wherever you're getting this podcast. This episode was produced by Sean Piles and myself. Liz Weston helped with editing. Sherry Gordon helped with the fact checking. Kaylee Monahan mixed our audio. And a big thank you to the folks on the NerdWallet copy desk, as always, for their help. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the nerds.