When Women Set Their Own Salaries, There’s Still a Pay Gap

by Patrick Brennan

The New York Times and Goldman Sachs (typical) engage in some victim-blaming with the results of a new study on a Goldman community-service program that advises entrepreneurs: Female small-business owners, who generally set their own salaries, pay themselves about 80 percent of what men in the same position do. Amazingly, this is almost the same as the unadjusted pay gap in the larger workforce between what full-time male and female workers earn.

The data come from a study Babson College did on 1,300 particpants in Goldman’s program, called “10,000 Small Businesses,” which aims to educate and help small-business owners. After the program, the gender gap shrank noticeably:

Men who went through the program gave themselves raises too — women just gave themselves even bigger raises. The study suggests two possible reasons: First, women learn from the program that paying themselves a reasonable salary makes sense as a financial decision, especially because it can demonstrate fiscal health to investors; second, from working with other small-business owners in the program, “participants have the opportunity to learn about the ‘going rate’ for their own salaries and develop the confidence to value their own time.” Both of these things may happen to male 10,000 Business graduates too, but Goldman and Babson think learning these things has a greater impact on women’s behavior.

As a caveat: These data are very far from ideal. A Babson professor who worked on the survey notes that women may have founded businesses in sectors with lower revenues than men, for instance (though this wouldn’t explain the difference in the raises men and women gave themselves). Not least because of that, the similarity between the Goldman/Babson number and the economy-wide pay gap has to be coincidental, but the fact that the program pushed women’s salaries up more than men’s is certainly interesting.

If women have more to gain from learning about their value and how it relates to their firm’s performance and finances, as the study finds, that’ll certainly affect their earnings across the economy, and may have lessons for how to address the gap between men’s and women’s earnings.

That “pay gap” is most famously described as women earning 77 cents on the dollar men do, but that number, which the president mentioned in his State of the Union speech this year, is highly misleading. It only adds up if you ignore that full-time working women don’t do the same jobs, work the same hours, or have the same experience and education as men do. In fact, the unadjusted pay gap cited by the president is much smaller than the 77-cent number for Millennial women because they’re entering many more high-achieving professions than their predecessors, or many of their male peers, for that matter.

When these factors are taken into account, the gap drops significantly but it does persist — it’s not 20 or 23 percent, but it’s probably 5 to 7 percent.

Why does it survive? It’s certainly possible it has something to do with discrimination — against which there are already a number of laws — but it also could have to do with women’s being less willing to fight for the salaries they deserve and could command.

A striking example, which is of course far from representative, came up in an interview with the new GM CEO, Mary Barra (whose pay package has attracted all kinds of controversy) — she informed Fortune that she’s never asked for a promotion or a raise at any point in her career. The women in the Goldman study are doing something nearly as extreme: They’re not even asking themselves for raises when they likely deserve them.

Some work casts doubt on just how substantial an effect women’s reluctance to negotiate and ask for raises can have, but there’s volumes of evidence that it does matter: Women don’t ask for as much compensation as men, are less eager to negotiate, etc. To the extent this issue does play a role, this is one more reason to believe that more laws making sex discrimination even more illegal, as congressional Democrats would like, isn’t necessary or the right way to address the pay gap. Something as simple as equipping women with the knowledge, and attendant confidence, needed to honestly assess the value they represent to their firm could help a lot. Or at least your friendly neighborhood vampire squid thinks so.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.