Economic Theory

Pay gaps don’t have to indicate discrimination. They can have perfectly harmless explanations

The furore about the gender pay gap continues, with little economic analysis but a lot of emotion. The latest concern is over the unsurprising news that the part-time work done by many women is paid less, and offers less career progression, than full-time work. This is likely to lead to demands that businesses equalise hourly pay for full-time and part-time work, offer top jobs on a part-time basis, and that the government should ensure that they do this. Given the mood of the times, I wouldn’t bet against these demands being acceded to, although the consequences might be less beneficial to women than their advocates would hope for: the total amount of part-time work offered would likely fall.

There is a wider context to this concern. Huge, and arguably excessive, attention has focused on the gender pay gap, which is largely the result of different choices made by individuals rather than the prejudices of employers. Yet there are big variations in pay within genders. Amongst the 14.7 million women currently employed in the UK there are large numbers of high-earning women, while amongst the 16.8 employed men there are very large numbers of low earners. A concentration on overall male-female differentials is to ignore the many other classes of pay inequality, most of which are at least as significant – and where there is often far more evidence of direct discrimination (for example with matched job applications) than there is against women.

There are marked differences in median earnings between many groups within British society. It is well established that there are big variations in hourly pay between different ethnic groups. Most are paid less than white British workers, with the exception of people of Indian or Chinese heritage. Male full-time workers from Pakistani and Bangladeshi backgrounds earn less on average than white British women working full-time. There are also differences between native-born minorities and immigrants. Thus for example British-born Pakistani heritage men face a pay gap of 19% in relation to white British men, while Pakistani immigrant men experience a 31% disadvantage. But to add to the complications, the picture for ethnic minority women is sometimes counter-intuitive. Bangladeshi heritage women earn more than Bangladeshi men and Black African British women earn 21% more than white British women.

Some ethnic groups face further disadvantage in that their employment rates are lower, and their unemployment rates higher, than the white British population. This is also true of people with disabilities. Men with epilepsy experience a pay gap close to 40% while those with depression are paid about 30% less than those in full health. But their disadvantage is compounded by far lower employment rates. Whereas 63% of healthy males and 57% of healthy females are in work, only 35% of men and women with disabilities are employed .

Religion is also a factor: in one study a decade ago Muslim men had a pay gap of around 17% in relation to Christian men – while Jewish men earned 37% more than Christians.

Sexual orientation is also associated with pay differences, with gay men (in one study, but not in others, and lesbians (in several studies) earning more than their heterosexual counterparts.

There is also evidence of large pay gaps linked to attractiveness, with both men and women rated ‘attractive’ earning about 20% more than those rated ‘average’. Tall people earn significantly more than short people, and obese people earn less than those of average weight.

As with gender pay gaps, all these other gaps may have to be deconstructed to make any sense. Jewish men earn more not because there is some weird Zionist conspiracy but largely because they are typically much better qualified and are in higher-paying professions than Christians or Muslims. Similarly Indian heritage Brits earn more than white workers because they are disproportionately professionals – doctors, academics, pharmacists, lawyers. Lesbians tend to cluster in a relatively limited series of jobs, and are more career-oriented on average than heterosexual females (who are more likely to have caring responsibilities).

One take-away point, therefore, is that a pay gap means little in itself without knowing more about the characteristics of the groups concerned. Knowledge of a raw pay gap – such as the government is forcing businesses to reveal – is a poor basis for policy. Another is that there is no particular reason to privilege one of these pay gaps –  gender – when it comes to public policy.  Sooner or later other concerns will follow as the public becomes more aware of these other gaps.

The third, surely, is that it is beyond the ability of businesses and government ever to eliminate pay inequalities in a remotely free economy. The mind boggles as to how a business could ever ensure that there was no pay gap between men and women, LGBT workers and straights, those with disabilities and those without, between dozens of ethnic groups, between tall people and short people and so on. The only logical end to this would be to employ workers in exact proportion with their representation in the community – recognising that people have multiple characteristics of course – and pay them all the exact same amount. This is insane, but it is where the current obsession with other people’s pay may be leading us.


1 thought on “Pay gaps don’t have to indicate discrimination. They can have perfectly harmless explanations”

  1. Posted 07/02/2018 at 13:20 | Permalink

    but what is the alternative. For employers to offer someone a certain amount of money to do a job and if they are happy to work for that then we stop there.

    Oh, that could work quite well.

    Though there is a certain surreal humour in watching barristers argue if working as a dinner lady is more or less onerous than working as a gardener.

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