Labour Market

The Gender Pay Gap is a fashionable myth


Tax and Fiscal Policy
Housing and Planning
The House of Commons Women and Equalities Committee is conducting an investigation into the Gender Pay Gap (GPG). Among the proposals it is considering are an extension of mandatory reporting of organisational pay gaps to smaller businesses (currently only those employing 250 workers are required to report) and the development of ‘action plans’ to reduce them.

The GPG is a statistic which is hazardous to interpret and variations in it need to be analysed with extreme caution. Different versions of the pay gap (all employees, FT, PT; hourly, weekly, annual earnings; mean, median) can give different answers and trends. It can change for reasons which are obscure: for instance one year the pay gap rose in both the public and private sectors, but the aggregate pay gap fell as the numbers employed in the private sector dropped while those in the public sector rose (the GPG generally being higher in the private than in the public sector).

Comparisons are very misleading. For example, those between countries: according to Eurostat, the unadjusted GPG for the UK in 2013 was 19.7%, in Italy only 7.3%. Nobody who knows anything about the Italian labour market would suggest that this is the result of more gender-blind behaviour by Italian employers. Only about 46% of Italian women aged 15-64 are employed, as against 67% in the UK; because of the high cost of employing low-skilled workers in Italy only relatively highly-skilled, and better-paid, women are in work. Thus Italy has a lower GPG. An extreme version of this effect is the case of Bahrein, which a decade ago had a negative pay gap – women earned more than men – of about 40%; only a handful of women worked in the formal sector, and these were largely highly-educated women.

The same issue arises within the UK, where Northern Ireland has a negative pay gap, probably the consequence of lower female participation and a concentration of employment in the public sector in the province.

Despite the gender pay gap being smaller on average in the public sector, there are in fact huge variations between government departments reflecting factors such as the type of employee and management structure rather than any difference in recruitment or HR practices.

Serious econometric work, rather than anecdotes, suggests that only a small element of the GPG can plausibly be attributed to discrimination after controlling for a range of observable factors which are known to influence pay, for example differences in educational and other qualifications, average age, experience, and hours worked.

Gender pay differentials between young people are now close to zero or negative – reflecting in part the better educational qualifications of girls and young women. It is only over the age of 40 that a gap really emerges. The obvious inference is that having children, caring responsibilities and other ‘lifestyle’ factors make for the difference in older age groups. Support for this comes from evidence that older single women seem to do as well as single men, while sexual orientation also has an impact (several studies suggest that lesbian women are paid more than straight women).

Furthermore, concentration on the over-40 pay gap in any case ignores ‘compensating differentials’ which offset lower pay to a considerable extent. There is evidence that other non-pay aspects of work done by women are more attractive than those for men. For instance women spend less time commuting, are less likely to work unsocial hours, less likely to face physical danger at work (the industrial accident rate for men is far higher than for women) and less likely to work outside or in isolated conditions. Wellbeing surveys suggest that they are on average happier at work.

There are many other ‘pay gaps’, some of which may arguably raise more important issues for public policy. There are known to be large pay gaps associated with (for example) ethnicity, religion and disability. In some of these examples discrimination may be a more obvious issue than is the case with the gender pay gap. For instance the Prime Minister has recently drawn attention to evidence that people with Asian/Muslim-sounding names are significantly less likely to be interviewed for jobs, evidence which is not found to the same extent for women.

One pay gap for which substantial evidence is beginning to emerge is that associated with looks: There is a ‘beauty premium’. After controlling for economically relevant factors, women rated attractive earn more than their plainer sisters. But interestingly the same effect also applies to men: handsome men do better in the labour market – and indeed the effect is stronger amongst men than amongst women.

All of this suggests that trying to impose policies to reduce the gender pay gap is difficult, as there are lots of other dimensions to pay inequality and the way in which pay develops over working lives is still incompletely understood. The danger in requiring organisations to publish GPG figures is that it will lead to some quite blameless organisations being castigated as discriminatory and sexist, while other organisations (which may actually treat women employees quite badly) will escape scrutiny as characteristics of their employment structure and recruits may produce a low or negative GPG.

This danger may in turn lead to employers trying to ‘game’ the situation by, for example, outsourcing unskilled work mainly done by females, or by turning contracted workers into freelancers, and thus reducing the measure by which they are judged. Such developments may not be in the interests of those whom policymakers wish to help.

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.

4 thoughts on “The Gender Pay Gap is a fashionable myth”

  1. Posted 21/12/2015 at 17:35 | Permalink

    So the wage gap is not strictly speaking a myth. Rather, it is the assumption that the gap stems in large parts from unwarranted discrimination that is the myth. Something most people, even ideologically driven ones, understand pretty quickly after thinking about it.

    The question is: why in the world are we so inclined to believing something as obviously loopy as that it is at all possible to pay one group radically less for the same work ON AVERAGE? No matter how I think about it, the thought is ludicrous. Yet we want to believe it. Why?

  2. Posted 22/12/2015 at 01:09 | Permalink

    It has long been known a myth; It’s been the Gender Pay Lie for years. A maleficent tool not just fashionable, but integral to the victimization careers of many feminists.

  3. Posted 22/12/2015 at 10:27 | Permalink

    I agree it’s not easy to use the statistics to define policy. However something has to be done for as long as suspicion exists. Isn’t this an opportunity for think tanks to innovate ways of making progress towards a truly free employment market? We have to do something about the inertia which sees people choosing those like themselves to fill the jobs where they are most trusted (and better paid). Thus were still seeing a hangover from when employers were white middle-class educated males. What can be done to challenge that without getting government involved?

    For what it’s worth I (male) have a foot in the door of an organisation where being female is an advantage. I have raised my concerns but without going into details, it’s not going to change until public attitudes change.

  4. Posted 01/01/2016 at 20:00 | Permalink

    Labor laws with affirmative action for women create difficulties for employers, who need to bear the cost. So GPG is a business myth, but a true government: The state destroys women’s labor market with exclusive privileges.

Comments are closed.