The Federal Reserve has pulled out all the stops to get the U.S. economy back on track and quell inflation. While increases to the federal funds rate have reduced the inflation rate from a four-decade high last summer, the current rate sits at 6.4% according to the most recent information from the Bureau of Labor Statistics (BLS), more than three times higher than the Fed’s 2% target.
For women across the nation, the longer it takes to cool inflation, the greater threat it poses to gender equality as it relates to the wage gap.
Higher everyday costs, paired with stagnant wages are creating the perfect storm. In fact, a 2022 national survey found that in the U.S., men are 33.3% more likely than women to have their salary keep pace with inflation.
Where wages stand right now
While some progress has been made, the wage gap hasn’t narrowed a ton in the past two decades. Increases in educational attainment and increased pay transparency in the workplace have narrowed the gap some, but there’s still progress to be made.
In 2022, women earned an average of 82% of what men earned, according to a new Pew Research Center analysis of median hourly earnings of both full- and part-time workers. This signals a roughly 2% increase since 2002, when women earned 80% as much as men.
The most recent data from Lean In shows that the path to economic equality is an even longer one for Black women, Native American women, and Latinas who earn 36%, 49%, and 54% less than their male counterparts, respectively.
Data from the U.S. Census Bureau paints a slightly more optimistic picture though its analysis looks only at full-time workers. The data shows that in 2021, full-time, year-round working women earned 84% of what their male counterparts earned, on average.
The bottom line: women’s wages aren’t rising as quickly as their male counterparts, and rising costs are diminishing their purchasing power even more. On a micro-level, this makes affording everyday costs challenging. On a macro-level, this disparity poses greater barriers to building long-term wealth.
“Higher inflation depletes the real value of income since more of your earnings need to go to paying for basic needs such as shelter and food,” says Alejandra Grindal, Chief Economist at Ned Davis Research. “Even though wages have been rising at a rapid pace on a nominal basis, many measures of real (inflation-adjusted) earnings have been declining for over a year and a half. This means that there’s less money left to save, if any at all. Lower income individuals, which have higher marginal propensities to consume, are more acutely impacted by inflation.”
Experts argue that new policies can create meaningful change
Women face countless barriers to pay equality and wealth building. Greater caretaking responsibilities, virtual learning models, and reduced career advancement opportunities ushered in by the pandemic have all added a new set of challenges to the mix.
Still, experts say that real change begins with those in positions of power.
“Even before this high inflation environment, women were at a wealth deficit compared to men. This is because of lower female participation in the workforce, shorter careers, and the gender wage gap. But some policies can be put in place to help close the gap,” says Grindal.
- Adjust retirement plans to account for longer life spans, shorter wages, and workplace leave. According to a global Wealth Equity Index report from WTW in collaboration with the World Economic Forum, women upon retirement are expected to have only 74% of the wealth that men have. Even if women aim to contribute the same percentage of their earnings into their retirement accounts as their male coworkers, lower earnings translate to smaller retirement contributions. Employers can help level the playing field through auto-enrollments in retirement plans, automatic contribution increases, and increased employer matches where possible.
- Provide greater support for mothers in the workplace. Women tend to pay a steep “motherhood penalty” that can take a toll on their earnings and career advancement opportunities. In fact, research has shown that hiring managers are less likely to hire mothers compared to women who don’t have kids. What’s more—when employers do hire mothers, they are more likely to offer that mother a lower salary than non-mothers. On the opposite side of the coin, men’s earnings do not take a hit when they become fathers.
- Continued pay transparency. Many states have enacted pay transparency laws that require companies to list clear salary ranges on their job postings. Experts argue that this is a solid step toward narrowing the gap and helping women set fair expectations around how much they should earn for their work.
How to protect your finances in a high-inflation environment
While the onus shouldn’t fall on women to repair the systems in place that are contributing to gender-related pay disparities, there are steps women can take to mitigate some of the effects that inflation can have on their finances. This includes:
- Eliminating high-interest debt. Expensive debt can make it harder to cover your day-to-day expenses and boost your net worth. This is especially the case for debts with variable interest rates that may increase drastically as a result of a sky-high inflation rate. Make a plan for tackling your high-interest balances so that you can begin to liquidate your debt and save more for the financial goals that matter to you.
- Putting more away for emergencies. Unexpected financial emergencies can require you to take on high-interest debt and force you to put other pressing goals like saving for retirement on the back burner. While there’s no one-size-fits-all goal for everyone, experts recommend saving three to six months’ worth of essential expenses. Crunch the numbers to figure out how much you need to save per month to hit this goal. If that feels like a stretch, take a look at your monthly budget to determine if there are other areas you can cut back on until you have a comfortable cushion in your emergency fund.
- Making it a priority to invest—even if it’s just a few dollars. Investing can be key to building long-term wealth. Even if you don’t have a ton of money to invest, starting with just a few dollars can add up to a significant return over time. Many investment platforms have zero opening deposit requirements and leave it up to you to decide how much you feel comfortable investing. When it comes to investing, the earlier you start, the more time your money has to grow.
The takeaway
The gender wage gap poses countless short- and long-term economic impacts for women of all ages. It plays a role in how women spend, save, and invest. The path to pay equality is riddled with countless obstacles, including a high inflation rate, that can diminish the little progress that has been made. For real and lasting change to be made, experts say it starts with those at the top.
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