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Slaughter & Rees Report - She Works Hard for the Money

May 5, 2014 --

The covers of global magazines can reveal what is on the collective mind of global business and public affairs. A scan of recent covers turned up a perennial challenge of leaders around the world: gender inequalities in the workplace.

The cover of a recent Bloomberg Businessweek: “Freeze Your Eggs, Free Your Career: A New Fertility Procedure Gives Women More Choices in the Quest to Have It All.” The cover of the latest issue of The Atlantic: “Closing the Confidence Gap: Even Successful Women Lack Self-Assurance at Work. Men Have Too Much.” These covers continue a global conversation sparked two years ago both by Princeton dean and State Department official Anne-Marie Slaughter’s (no relation) powerfully personal essay on the cover of The Atlantic, “Why Women Still Can’t Have It All,” and by Facebook executive Sheryl Sandberg’s book “Lean In: Women, Work, and the Will to Lead.”

How are women today faring in the workplace? Better than in the past—but still confronting sizable gaps. Start with jobs. Women remain underrepresented in key leadership positions in business and beyond. The number of female Fortune 500 CEOs? 23, or 4.6 percent. The number of female Fortune 500 C-level officers? About 15 percent—with zero at 135 of these companies. The number of female U.S. senators? 20. So it goes around the world. Climb the ladder of professional success and there are fewer women.

What about earnings? Here we commend to you a fascinating new academic (yet accessible) article, the presidential address of Harvard economist Claudia Goldin upon completion of her term as president of the American Economic Association. As the title suggests, “A Grand Gender Convergence: Its Last Chapter,” in recent decades women have been “swimming against the tide” of increasing income inequality. As human-capital investments between men and women have converged, so, too, have their earnings.

But convergence has not been complete. What explains this residual gender gap is a complex combination of forces: outright discrimination, men’s greater propensity to negotiate and self-advocate, or differential advancement standards for women. Goldin zeroes in on research by her and others that illuminates three largely unexplored features of this residual earnings gap: (1) It is concentrated in certain occupations and industries, business and law being most prominent; (2) It expands greatly with age; and (3) It is much smaller for women without children than for women with children.

Goldin marshals an impressive array of evidence that almost all of these three features are explained by the linked forces of career interruptions and average hours worked. Women are more likely to stop working at various points, and thus more likely to work fewer and more-irregular hours over time—all of which is often driven by having and raising children. There are certain occupations for which companies greatly value long hours delivered at particular points in time. These are typically occupations in which talent is highly valued and differentiated across people, and in which key knowledge is not readily transferred among colleagues. Think partners in investment banks, in consulting firms, in law firms. In these positions, talented workers who can reliably work long hours tend to earn outsized returns. Those who cannot so work earn far less—and very often this group includes mothers.

Thus did an analysis of MBA graduates from the University of Chicago uncover a startling trend:  upon graduation women earn virtually the same as men, but five years out women were earning an average of 30 percent less than men, and 10 to 16 years out this income gap had yawned to a stunning 55 percent.  In this sample, women with children work 24 percent fewer average hours than women with no children or men, and this hours gap grows as children age.

So what to do? No disrespect, but “leaning in” at work might not overcome the reality that today many high-talent, high-compensation jobs require such extensive work. Goldin concludes that, “The gender gap in pay would be considerably reduced and might vanish altogether if firms did not have an incentive to disproportionately reward individuals who labored long hours and worked particular hours.”

This, however, may be easier said than done. When a potential $100 billion merger is at the critical stage of final negotiations and due diligence, both companies wants the top bankers, the top lawyers, the top insert-talented-people-here working 24/7 to close the deal. With such large fees at stake, can banks and consulting firms and law firms serve their clients differently?

Who answers this question will ultimately be the leaders of these high-talent businesses. We see here a large innovation opportunity: crafting new ways to better utilize the skills of those whose life path comes to points where working a gazillion continuous hours is neither desirable nor feasible. As in so many other settings, young entrepreneurial firms might show the way. And, as Anne-Marie Slaughter has pointed out, these breadwinning-caregiving challenges apply to both women and men. Indeed, six months after the birth of his daughter, one of us became an entrepreneur.

In 1983, the late Rock & Roll Hall of Famer Donna Summer scored the biggest hit of her career with the anthem, “She Works Hard for the Money.” Today women—and men—around the world continue to do so. Whether business leaders today find new ways to harness talent will play a major role in determining how much closer women get to labor-market equality for all.

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