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Employers: Take the Lead on Pay Equity!

Employers and employees need to become familiar with the California Fair Pay Act, the nation’s strongest such law, which requires equal pay for “substantially similar work.”

The California Fair Pay Act holds the promise of making the state a leader in pay equity, which will contribute to the benefit of both workers and employers in the world’s sixth largest economy. There is much work to be done; many firms are unprepared and have not developed systems to comply with the law.

And the pay gap is large. The gender “pay gap” remains significant and has changed little for two decades. According to the most recent U.S. Census Bureau data, women working full time in the United States typically are currently paid just 80 percent of what men are paid, a gap of 20 percent.  And while white women’s median hourly earnings are 82 percent and Asian women earn 87 percent of those of white men, black women earn 65 percent and Hispanic women earn 58 percent of what white men earn.

Institutional influences, rather than differences between individual workers, are the main driver of disparities in pay. In their 2017 study, Francine Blau and Lawrence Kahn note the single most important cause of the pay gap, accounting for more than half of it, is the segregation of men and women in different jobs. Male-dominated jobs tend to pay more than female-dominated jobs even when the required skill, effort, responsibility and work conditions of the jobs are similar. Employers usually do not intentionally pay women and men differently; the disparities persist, however, because they are built into the existing job classifications, pay structures, and processes by which starting pay is set. 

Recent legislation is recognizing the importance of addressing these institutional factors. California now requires purposeful, data-driven evaluations and, when needed, adjustments to pay structures and practices. The California Fair Pay Act, whose provisions for pay equity by gender, race and ethnicity took full effect on January 1, 2017, requires employers to provide equal pay for employees who perform “substantially similar work” when viewed as a composite of skill, effort, and responsibility. It also prohibits employers from imposing pay secrecy policies or retaliating against employees who discuss pay rates or inquire about their co-workers’ wages.

California is not alone in this crusade; many states have already enacted or are working toward pay equity laws requiring employers to examine and equalize pay structures and promoting pay transparency. California employers are, however, closest to achieving gender equity in pay and therefore to realizing the benefits, which include lower rates of employee turnover, higher rates of worker satisfaction and enhanced productivity.

Under the law, companies must collect, maintain, and periodically evaluate data on job characteristics and pay. Doing so ensures workers are fairly paid and protects companies against complaints, litigation and liability associated with inequitable pay practices. Employees should demand that these processes are in place as well.

Employers and employees need to become familiar with the new provisions. Employees need to be ensure they are paid for the skills and talents they possess. At UC Davis later this month, we will host a conference to discuss how firms can best comply and benefit from the California Fair Pay Act. We all must continue the steady march toward equitable pay.

Kim Shauman is a professor of sociology at UC Davis. She served on the Pay Equity Task Force of the California Commission on the Status of Women and Girls. Brad Barber is professor of finance and Kim Elsbach is a professor of management at the UC Davis Graduate School of Management.