Labour Market

Some non-shocking statistics on gender pay from the IFS

“On average, women in paid work receive about 18% less per hour than men”. So reads the opening line of an Institute for Fiscal Studies–Joseph Rowntree Foundation press release for a new briefing note today.

Here we go again. It’s a shame that another two high-profile organisations are propagating this. As we argued in last week’s How much do you earn? paper, these aggregate statistics are largely meaningless and designed to create a sense of unfairness. Are these workers full time or part time? In the public or private sector? How many years’ experience? The education level of the workers? What type of roles? What is the age profile of the workers? And what about all those compensating differentials which we know are important?

This is not merely theoretical, because using these stats as a catalyst to force pay to be equal for work which the market rates unequally produces damaging distortions in the economy.

But taken with all these caveats, the IFS report helpfully provides us with some facts which are pretty intuitive:

1)    The gender wage gap per hour is falling (down from 28% to 18% between 1993 and 2015), which we’d expect given educational and societal trends. Though it must be said, this is not based on the ONS’s preferred definition of the pay gap, or their preferred data source.

2)    The wage gap between young men and women, where you’d expect societal and educational trends to bite most, is just 6 per cent (before you even control for any of the points above).

3)    The wage gap prior to having children is much lower at 10 per cent than the overall average wage gap, suggesting that having children is a big contributory factor.

4)    Indeed, following the arrival of the first child, the wage gap steadily increases, on average, to 33 per cent after 12 years.

5)    Why is this? A big clue is that 20 years after the birth of their first child, women have on average been in paid work for four years less than men and have spent nine years less in paid work of more than 20 hours per week.

Well, duh. Even ignoring the multitude of other factors that might be important for pay above, we see a story that is intuitive: trends in education and society have seen a closing gap over time, but a combination of biology and decisions to take time out of the labour force lowers long-term earning potential on average of women relative to men. This isn’t due to an immediate fall in the hourly rate, but because as a result of much less time working, women miss out on progression and building up human capital. This is reflected in much lower wages relative to men upon return to the labour market.

Now, the IFS describes these lower rates for women as a ‘penalty’. But no evidence is presented that it is not merely a consequence of positive choices. If someone’s preferences are to take significant time out to look after children or work shorter hours post-child birth over that 20-year period, then this is welfare-enhancing, not a cost. Lower future earnings would be weighed against the rewards from the alternative activities the women undertake.

One reason why this might not be a ‘positive’ choice, of course, is that childcare is just so expensive that for financial reasons many women decide to work less than they would like. If so, we should point a big finger at politicians themselves, who through policy continually formalise and professionalise the sector, with beefed up regulation of childminders and a push towards the greater use of formal, expensive nurseries.

Sadly, rather than advocating removing barriers and allowing women to choose their own path, the response to this report is more likely to be greater demand for ‘something to be done’ about the ‘motherhood penalty’ through Swedish-style paternity leave and yet more subsidisation of childcare.

This is not without danger. As our paper explained, government interventions to close the gap through business reporting may lead to businesses changing arrangements in ways that damage women. Forcing men to take longer paternity leave would raise issues about personal liberty and unfairness in relation to men and women without children. Childcare, meanwhile, will be the subject of a forthcoming paper.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.


2 thoughts on “Some non-shocking statistics on gender pay from the IFS”

  1. Posted 03/09/2016 at 06:34 | Permalink

    Thanks for the excellent article. Surely one way to ensure that women are less valuable to employers and hence have less bargaining power is to give them a non-waivable entitlement to paid maternity leave. Does not such “protection” institutionalize a pay gap?

  2. Posted 13/09/2016 at 10:42 | Permalink

    Where there is a higher educational component in training such as teaching, medicine and law, the gap is modest by appropriate accommodations of employers and partners who are usually similarly educated. These choices must eventually be accommodated in business but are likely to trail in other sectors. Interesting article thank you.

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