Labour Market

Pay gaps and the limits of central planning (Part 2)


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Continued from Part 1. 

Those pushing for equality of outcome also fail to acknowledge all-important tradeoffs and unintended consequences of their favoured policies. Unsurprisingly, many who back wide-ranging interventions to ‘fix’ the gender pay gap would also like to increase the size of the welfare state. Yet, as international evidence suggests, this would not be without its complications.

The Swedish-Kurdish economist Nima Sanandaji and others have documented a counterintuitive trend known as the Nordic gender equality paradox. They observe that Scandinavian countries, whose welfare systems have been designed to accommodate working mothers, end up with higher levels of occupational segregation by gender than countries considered much less ‘progressive’.

In Sweden, for instance, 90% of nurses are female, and 90% of engineers are male – a trend which has barely changed since the 1980s. Sanandaji cites a UCLA study which found that just 11% of managers and professionals in Sweden are women, a markedly lower proportion than in many other developed economies, including the UK, France and Germany.

Interestingly, Iceland, the Scandinavian ‘outlier’ with much lower tax rates and a comparatively smaller welfare state, offers well under half the maternity leave of Norway, Finland and Sweden, yet ends up with far more female managers as a proportion of the workforce. The US also belies the common claim that generous family leave is a prerequisite for gender equality. American women have a similarly high ratio of managers and professionals as Iceland, with no federal obligation for paid leave whatsoever.

While Sweden has one of the highest rates of female labour force participation in the world, women who work full-time are paid around 15 percent less than men. Their gender pay gap is similar to that of the US and higher than in many countries with comparable female employment rates. At 21 percent, the pay gap is even larger among parents.

There is even evidence that the more egalitarian the society, the greater the differences in personality traits between the sexes.

What explains this effect? Have women in Sweden, a country which ranks among the world leaders in gender equality on almost every conceivable metric, been brainwashed and socially conditioned into making these choices?

A far more likely explanation is simply that, when given the option of generous maternity leave, most women choose to spend more time with their families. Rather than hastening the decline of rigid gender roles, lengthy parental leaves and state subsidised child care seem to encourage traditional gender specialisation. As per the law of unintended consequences, it may be that large Nordic welfare states inadvertently push women to channel less energy into their careers and more into domestic life.

The opposite is often true in developing countries, where less progressive options are on offer. One recent study found that countries like Albania and Algeria have a greater percentage of women amongst their STEM graduates than the developed countries praised as models of gender equality. Researchers attributed this phenomenon to poorer, ‘gender unequal’ nations having less welfare support, making the choice of a comparatively high-paid STEM career more attractive. In more affluent counties, by contrast, where any career path looks relatively safe, women feel free to make choices based on non-economic factors.

All of this suggests that occupational preference is not actually the result of socialisation. Instead these environments seem to give greater freedom to each gender to express differing preferences.

Surely, women choosing to pursue the careers and degrees of their choice should be a cause for celebration? Yet Western policy-makers spend an inordinate amount of time brainstorming the reasons for lower levels of female representation in STEM and attempting to ‘nudge’ women into different fields.

Commentators also ignore “compensating wage differentials” – ‘economist speak’ for the concept that dangerous or risky jobs with unpleasant working conditions pay more than those with fewer risks and a better working environment. Certain industries, like mining, have more fatalities than, say, working in a bank or law firm. Unsurprisingly, their workers get a pay premium in recognition of the risk of fatality or injury on the job. Evidence suggests that men overwhelmingly work in these industries – for example, 96% of workplace deaths involve men. The same is also true for jobs with other unpleasant characteristics, or which involve uprooting or travelling long distances. One recent ONS report found men far more likely to commute longer distances for work.

At the same time, jobs with favourable conditions may induce workers to accept lower pay than they might have got elsewhere. Multiple studies suggest women are less likely to value pay strongly over other features of the job, such as flexibility and pleasant working environments.

Again, our search for gaps – and presumption of victimhood – doesn’t tell us the full story, and may even be blinding us to job satisfaction and other kinds of workplace success. Women may earn, on average, less than men – but they also work shorter hours, travel shorter distances to work, retire earlier and enjoy longer retirements.

These are perfectly legitimate aspects of a job to value, and to make trade-offs for, yet the overarching narrative suggests that women who do not prioritise the same things as men are somehow ‘disadvantaged’ or being held back in some way.

Are women who value work/life balance victims? No. Is the absence of female tree surgeons and sewage disposal workers evidence of a patriarchal conspiracy? No.

Public policy should work to facilitate individual choice, not impose a rigid, centrally-approved preconception of family life on households. Ignoring compensating differentials means campaigners overlook these crucial elements of personal autonomy, and makes politicians more likely to plump for ineffective or even coercive policy solutions.

How far we’ve come from the rallying cry of second-wave feminism – “a woman’s right to choose”. For now, it seems our policymakers will only be content when men and women are making exactly the same choices.

Madeline is the IEA’s Editorial Manager, responsible for commissioning and running the IEA blog, and creating content for the IEA podcast channel and other media outlets. Prior to joining the Institute, she worked as a Parliamentary researcher and speechwriter, and as a reporter for Newsweek Magazine. Madeline graduated from St Hilda’s College, Oxford in 2014, with a degree in English. As an undergraduate, Madeline was actively involved in university politics, and was elected to Standing Committee of the Oxford Union during her studies.


1 thought on “Pay gaps and the limits of central planning (Part 2)”

  1. Posted 17/11/2018 at 22:49 | Permalink

    Excellent analysis. Of course, the female commentariat who wish to nudge or shove women in a particular direction that most women don’t freely choose are a self-selecting group of people who have made quite particular choices. They seem to think that women who make different choices from them are somehow flawed. In general, of course, our law-makers do not represent the characteristics of the population as a whole (and neither would we want them to). However, there is a particular problem with female political representation because those female representatives are using their position to try to shove women into making choices that, when left to decide for themselves, they tend to choose not to make. In fact, the vast majority of the population don’t choose jobs that maximise money, power and status, but men don’t have people telling them that they should. This particular breed of feminism (represented by May, Morgan and nearly all the Labour Party) is especially materialistic.

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