Government and Institutions

What should equal pay mean today?

Two interesting equal pay issues have come to light recently. In one, concluded yesterday, a group of male manual workers originally employed by Swansea Metropolitan University, which merged with the University of Wales Trinity Saint David last year, won around £500,000 to redress sexual discrimination against them. They claimed that they had been underpaid for several years in comparison with mainly female library assistants and other university employees.

In another, local councils fear legal action from senior managers in areas such as social care and children’s services (some of whom are female) to bring their pay up to the level of Directors of Public Health (some of whom are male). These Director posts, until recently within the NHS, are being transferred to local authorities. They have been paid generously as part of the general inflation of medical salaries under the last government. It has been suggested that there is a pay differential of around £30,000 between these senior managers and their new colleagues.

When the Equal Pay Act was pushed through by Barbara Castle many years ago it was to redress some pretty stark anomalies in pay between men and women, dramatised in the film Made in Dagenham. But as always, there are unintended consequences of government intervention. After we joined the EU, we became subject to European law on pay equality, which dates back to the Treaty of Rome. In 1983 we had to ratify the Equal Pay Directive, which extended the scope of equal pay legislation to ‘work to which equal value is attributed’. This slippery notion greatly broadened the possible comparisons relevant to an equal pay or discrimination claim. No longer were comparisons confined to men and women doing the same, or very similar, jobs in the same workplace.

One reaction, especially in the public sector, has been to develop complex pay structures based on a quasi-scientific comparison of elements of job descriptions. In a distant echo of the labour theory of value, consultants such as the Hay Group have profiled jobs according to such factors as the knowledge required for a post, problem-solving initiatives which may be needed, responsibilities and accountability.

These factors may seem unexceptionable, but they ignore arguably more important matters such as individual performance and market conditions which are key drivers of pay differentials in a free market. This is what leads to the anomalies which the law now punishes.

Private sector employers are usually sufficiently canny not to paint themselves into a corner by having job classifications which leave them excessively vulnerable to tribunal claims – and, of course, they have the ultimate get-out that they can close or restructure. The public sector, however, tends to do everything by the book, egged on by unions, and can find itself hit by large bills when it gets things wrong. Birmingham City Council, for example, has been hit by thousands of equal pay claims following an adverse tribunal judgment in 2011 on its long-established employment practices: the total bill may be as high as £1 billion. Job losses are sure to follow.

This is an area which the government should really revisit. There should be reconsideration of what law in this area in 2014 should really be aimed at. As it stands, one-off judgments from unaccountable tribunals can cost taxpayers a lot of money, threaten jobs, and produce perverse outcomes such as boosting male pay in relation to that of women and that of local authority bureaucrats in relation to the private sector.

However, given the role of the EU in this, and the howls of protest from (often largely taxpayer-funded) lobby groups which would accompany any rethink, any politician daring to raise this issue had better wear a tin hat.

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.

1 thought on “What should equal pay mean today?”

  1. Posted 13/08/2014 at 17:34 | Permalink

    What about equal pay for everyone? How would you feel about that if the society and economy functioned well? Do you want more than the average?

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