The gender pay gap shrank in 2020, but not because companies started paying women more

• Women working full-time, year-round made 83 cents for every dollar men made, according to Census data.
• The pay gap appeared to narrow in 2020, but that's because of the women who lost work during the pandemic.
• Women left low-paying jobs, such as in restaurants, during the pandemic.
• See more stories on Insider's business page.

The pandemic drove many women out of the labor force altogether - and that made a difference in last year's gender pay gap.

Whether they had to help children with virtual schooling, care for older family members, or were worried about their own health, more than 1.6 million women left the workforce and haven't returned since February 2020.

When the Census Bureau released income and poverty data for 2020 on Tuesday, the pay gap may narrowed slightly. But that can be deceiving. Many women left low-wage jobs, bringing up reported earnings for women last year.

"As the women doing those low-paid jobs - in restaurants, in retail, as child care workers, as hotel housekeepers - left the workforce, the wage gap artificially appeared to be closing," Emily Martin, the vice president for education & workplace justice at the National Women's Law Center said in a statement.

Looking at median earnings for full-time, year-round workers, women earned $​​50,982 and men earned $61,417 in 2020 per the Census data. That means women earned 83.0% of what men made or 83 cents for every dollar men earned. That's about a cent higher than in 2019, where women working full-time, year-round made 82.3 cents for every dollar men working full-time, year-round made.

A new analysis from small business platform Gusto came to a similar conclusion. Gusto's payroll data shows the pay gap narrowed by 2 cents from 2019 to 2020. Women working full-time, year-round earned 74 cents for every dollar men working full-time, year-round earned in 2020, per Gusto.

"On paper, it looks like women's relative earnings jumped," Luke Pardue, economist at Gusto, told Insider in an email. "What actually happened was women in low-wage, service-sector jobs left the workforce at significantly higher rates than women with higher-earning, professional sector jobs."

Gusto's microdata shows those who are part of the lowest wage quartile had the highest termination rates in 2020 for both men and women. Overall, women had a higher termination rate in 2020 than men, at 32% and 27% respectively.

"Indeed, we find that one-fifth of the narrowing of the gender pay gap was due to increased termination rates of women in 2020 - and that these termination rates resulted in the loss of an additional $44 billion in women's income lost from this termination gap," Pardue wrote in Gusto's report.

Per Census data, median earnings for full-time, year-round workers increased significantly by 6.9% in 2020 to $56,287, but again because of the kind of jobs Americans lost during the pandemic. The Census Bureau wrote in the report the figure "corresponds with a decrease of about 13.7 million full-time, year-round workers" and that some people may have moved to part-time as the number of workers overall dropped by roughly a smaller 3.0 million in 2020. Median earnings for total workers dropped by 1.2% from 2019 to 2020.

Companies can take steps toward closing the pay gap

Some women may have left the labor force for good. As of August 2021, over 1.6 million women who are at least 20 years old have left the labor force since February 2020, right before the start of the pandemic. That means they're not working or actively looking for work.

Jasmine Tucker, director of research at the National Women's Law Center, told Insider she's worried about the pay gap in the years to come. Because women have been out of work, she said, they might take the first job offer even if it doesn't pay well. She added that "they might be less willing to negotiate the salary or any of the other benefits in that job because they won't want to lose the offer."

At the national level, Tucker said policies and actions like raising the federal minimum wage, passing the Paycheck Fairness Act, and strengthening equal pay laws are critical.

She added companies can also implement changes like raising wages and offering paid family and medical leave so employees don't have to make the choice between work and caring for someone or their own health.

Pardue told Insider in an email "flexibility is key to closing the pay gap and keeping women in the workforce."

"Flexibility in the professional services sector - in the form of paid sick leave, flexible scheduling, remote work, and greater access to childcare - has gone a long way in keeping women in the workforce," Pardue said in an email. "That type of flexibility should be accessible to women across industries and sectors."