Labour Market

As women enter an occupation, average pay falls. Sexism? No. Just supply and demand

The gender pay gap continues to attract passionate attention on both sides of the Atlantic. It has been known for many years that the size of this gap is associated with the relative proportion of men and women employed in particular occupations. Male-dominated fields typically pay more than female-dominated ones. There are several possible explanations for this. One is the existence of compensating differentials. If working conditions differ, pay will reflect this. For one thing, men are more likely to be in dangerous jobs with long hours. There is abundant evidence that such job characteristics carry a wage premium, other things such as education and experience being held constant.

Also if preferences over types of work differ, so will pay: women typically report a preference for working in jobs with intrinsic satisfactions – such as helping other people – while men are more money-oriented. In the US, median earnings of information technology managers (mostly men) are 27 percent higher than human resources managers (mostly women). It’s much the same here.

Of course many women do dangerous jobs, while many men work in caring roles. But pay gaps are based on averages.

Things change. In recent years some interesting evidence has emerged (particularly in the US) that, when increasing numbers of women enter a formerly male-dominated occupation, earnings fall. This is more obvious in the private sector than the public sector, where bureaucratic rules and union influence mitigate the effect.

Why does this happen? Paula England, a Sociology Professor at Cornell University, is in no doubt that there is ‘substantial evidence’ that employers place a lower value on work done by women. “It’s not that women are always picking lesser things in terms of skill and importance,” Prof England says, “it’s just that the employers are deciding to pay it less.” Her view has been echoed by Sam Smethers, the chief executive of the UK’s Fawcett Society, who asserts “This shows that it’s not women’s work that is undervalued, it’s women”, while Jayne-Anne Gadhia, head of Virgin Money, says there is an “unconscious bias” against women.

OK, maybe I should check my privilege and all that, but to an economist such assertions just don’t ring true. Employers don’t think in that way. Many of them are women themselves, of course. They want to get the best staff that they can, male or female, and will pay what they have to do to get them. What they have to pay, though, is not necessarily going to remain the same over time.

When you get a big influx of potential employees into an occupational area, whether as a result of an expansion of graduates with particular skills, or as a result of migration, or as a result of declining pay and opportunities in other areas, you surely expect a decline in relative pay? This is accentuated when the new entrants into this occupational market have lower reservation wages – i.e. what they are prepared to accept – than the traditional incumbents.

There is plenty of evidence that women’s reservation wages typically lie below those of men. One reason is the comparative productivity in, and taste for, domestic work. Another is willingness to travel for work. An important and well-documented one is that women ask for less pay than men.

So an influx of women into a field is likely to lead to more competition and lower pay. Male workers will be less attracted to the occupation, so the process is accentuated. Over time quite startling changes of relative pay can occur. You may not like how these changes play out, but to blame them on employer attitudes is unhelpful and just adds to the anti-business rhetoric of too many of our chattering classes.

Prof Len Shackleton is a Visiting Fellow at the IEA, and professor of economics at the University of Buckingham.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.