How is Gender Pay Gap Calculated? Formula & Examples

The gender pay gap is calculated by comparing the average earnings of men and women, which shows disparities in pay across industries and job roles.

Right now, there's a clearer picture of wage differences in most workplaces, considering factors like experience, education, and job level.

Explore how to calculate gender pay gap and see real-world examples to illustrate its impact.

What is gender pay gap?

The gender pay gap refers to the difference in both the average wages between men and women, typically expressed as a percentage of men's earnings. It highlights disparities in pay that can result from various factors, including differences in:

• education,

• experience,

• job type,

• gender bias,

• and unequal access to leadership opportunities.

Addressing the gap often involves promoting pay transparency, equitable policies, and greater diversity in the workplace.

Gender wage gap can be calculated by using the mean earnings of both male and female or using their median earnings. The gender pay gap formula is:

For the mean: [(Mean male earnings - mean female earnings)/mean male earnings] x 100 = Gender pay gap (%)

And for the median: [(Median male earnings - median female earnings)/median male earnings] x 100 = Gender pay gap (%)

Research suggested that organization facing a gender pay gap issue may encounter:

• Diminished employee morale and trust, especially among female employees,

• Affects overall productivity and engagement,

• Difficulties attracting and maintaining top talents,

• Risks reputational damage, and

• Potential legal challenges

It is important to assess your pay level to see whether there is a pay gap and does your pay level aligns with your business goals and initiatives. CompAnalyst® Pay Equity Suite can expand your analysis to include all dimensions and variables that may affect compensation.

The current gender pay gap: statistics

These figures reveal the current state of the gender pay gap and show the "real" progress made toward pay equity.

• Women worldwide earn about 77 cents for every dollar earned by men. This means that when a man earns $1.00, a woman earns approximately $0.77 on average.

• The gender pay gap is smaller among younger workers in the United States. Women ages 25 to 34 earn about 95 cents for every dollar earned by men in the same age group.

• The pay gap varies greatly by race and ethnicity in the U.S. Black women earn about 63.7 cents, Native women 59 cents, and Latinas 57 cents for every dollar earned by white men.

• At the current pace, global gender parity remains a long-term challenge. Current estimates suggest it could take 134 years to close the global gender gap if progress continues at the current rate.

Prioritizing equal pay improves employee satisfaction, retention, and overall organizational success. CompAnalyst® Pay Equity Suite can help attain and maintain pay equity to address issues like gender pay gap.

The main causes of the gender pay gap

Numerous studies and research have discovered several factors that contribute to the gender pay gap, some of which are:

1. Gender discrimination and bias: Employers may engage in pay discrimination beyond apparent efforts to undercompensate women by using previous salary history when making hiring and compensation decisions. This practice disproportionately affects wage and salary workers, particularly in industries where women work in lower-paying roles. As a result, working women face persistent income disparities, contributing to overall gender inequality in the labor force.

2. Occupational segregation: Women and men frequently engage in different industries and professions, with women being more prone to occupy lower-paying positions. Despite similar educational attainment, the wage gap persists as women are often concentrated in lower-paying fields. Also, even among full-time workers, female-dominated occupations such as teaching and nursing generally offer lower earnings compared to male-dominated professions like engineering and finance.

3. Work experience: Women tend to be more inclined to pursue career breaks or part-time employment due to caring obligations, resulting in lower work experience and a slowed career advancement. Also, part-time workers often work fewer hours, which can further contribute to reduced earnings and limited opportunities for promotions.

Upon completing a gender pay gap assessment, it is important to address any pay equity issues identified. Pay equity remediation is the next step in correcting unjustified pay disparities within an organization, and Salary.com's Pay Equity platform supports organizations throughout the remediation process.

How to calculate gender pay gap

Calculating the gender pay gap allows organizations to identify pay disparities, thereby promoting equitable compensation and ensuring equality in the workplace.

Here's how to calculate the gender pay gap, with the right formula:

Step 1: Calculate the total male earnings

Compile a list of all male employees who receive compensation. Next, sum up their individual earnings, including salaries, wages, bonuses, and any other forms of compensation, to determine the total earnings.

Step 2: Find the average male earnings

To determine the average (mean) earnings for male employees, take the total earnings of all paid male employees and divide it by the total number of men in your company.

Step 3: Determine the average female earnings

Do the same for all the women's wages in your company. Gather the total wages of all female employees in your company. Divide this total by the number of women to calculate the mean (average) earnings for female employees.

Step 4: Subtract the average earnings

After getting the average earnings for both men and women employees, subtract the average (mean) earnings of women from the average (mean) earnings of men.

Step 5: Calculate the gender pay gap percentage

Take the difference between the average earnings of men and women, divide that by the mean earnings of men, and then multiply the result by 100. This will give you the gender pay gap as a percentage.

Gender pay gap examples

The examples below illustrate how to calculate the gender pay gap step by step.

• Example 1

  A company has 7 employees, with four of the employees are men earning $20, $25, $20 and $30 per hour, respectively. The remaining three are all women earning $20 per hour, respectively.

  Find the mean earnings for men:

  ($20 + $25 + $20 + $30)/4 = $23.75

  Find the mean earning for women:

  ($20 + $20 + $20)/3 = $20

  Now, follow the gender pay gap formula:[(Mean earning for men - mean earning for women)/ mean earning for men] x 100 = Gender pay gap (%)

  [($23.75 - $20)/$23.75] x 100 = 15.79%

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  This means that, using the mean, the average pay gap interprets that women are paid 15.79% less than men. This figure is quite concerning and may indicate pay inequities.

  If your organization faces such challenges, Salary.com's Pay Equity Suite provides tools to address gender pay gaps, raises, and overall pay fairness.

  Now, let's calculate the gender pay gap using the median earnings:

  The median represents the central value of a sequentially ordered set of numbers. If the range has an even number of values, the median is the average of the two middle numbers.

  1. Sort all the earning of men employee in order, with the lowest paid first and the highest paid last.

  2. Identify the figure in the middle of the list. The figure is the median earning for men.

  3. Do the same for all the women in your company. The figure is the median earning for women.

  4. Take the median earning for men and subtract the median earning for women.

  5. Divide the result by the median earning for men.

  6. Multiply the result by 100.

• Example 2

  A company has 7 employees, with four of the employees are men earning $20, $25, $20 and $30 per hour, respectively. The remaining three are all women earning $20 per hour, respectively.

  Find the median earning for men: $20, $20, $25, $30

  Median = ($20 + $25)/2 = $22.5

  Find the median earning for women: $20, $20, $20

  Now, calculate using the gender pay gap formula:[(Median male earnings - median female earnings)/median male earnings] x 100 = Gender pay gap (%)

  [($22.5 - $20)/$22.5] x 100 = 11.11%

  The result indicates that, using the median, women are paid 11.11% less than men.

  Transparency, proactive measures, and policy modifications are necessary to mitigate the gender pay gap and guarantee equitable compensation. By cultivating a more inclusive and productive workforce, pay equity helps employees, businesses, and economies.