The gender pay gap is explained by free choices and compensating differentials
16 August 2017
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Brexit
Economic Theory
Education
The Guardian has recently published data on the gender pay gap in different parts of the Civil Service. Despite the gap having fallen since this exercise was last done, there has been predicable outrage. Labour says it is ‘appalling’ and ‘morally wrong’ for a pay gap to exist at all in the public sector. The Fawcett Society says it will take 40 years to close this pay gap on current trends, and ‘public services should be leading the way’.
Big departments where men are paid a lot more than women are Business, Energy and Industrial Strategy (21%), The Cabinet Office (18%) and HM Treasury (also 18%). At the other extreme the Home Office has a gap of just 3% while Work and Pensions has no pay gap at all.
Now anybody who knows the Civil Service will realise that all major departments tend to have the same unions, the same pay structures and the same HR practices. It is therefore intrinsically unlikely that the differences can be adequately explained by variations in sexism and discrimination. As a Cabinet Office spokesperson points out, the pay gap is ‘affected by differences in seniority, profession and regional distribution of staff, which can be very different across departments and are not controlled for in the raw data’.
This is absolutely right, but this spokesperson is probably wasting his or her breath. It is clear that very few people take the trouble to understand data on pay gaps, and inevitably departments with particularly large gaps are going to be vilified.
This sort of analysis is soon to be applied to large organisations in the private sector. Well-known firms will be castigated if their pay gap looks out of line. What is worrying is what they may do as a consequence. For this crude type of indicator can be manipulated to improve a company’s public image and, unlike in the civil service, there will be a strong incentive to muddy the waters. For example, if you outsource low-paid female labour, you reduce the pay gap. Or if you only recruit women at high-paying grades rather than at entry level you also reduce the gap – though this may mean that young female labour market entrants get fewer opportunities. So women may be disadvantaged as a consequence of the government trying to improve their position.
There is another issue which I don’t think I’ve ever seen mentioned in this long-running debate. In order for the pay gap to vanish completely, men and women would need to have received the same types of education, entered the same types of job, undergone the same in-house training, worked the same hours, applied for promotion at the same rate, taken the same time out of the workforce and so on.
But if they did so, other types of difference would appear – and not to women’s advantage. This is because a significant part of the pay gap – as I argued a while back in Should we mind the gap? – arises from what economists term ‘compensating differentials’. Men doing less pleasant or risky or less secure jobs obtain a premium in the labour market to offset this. Women typically do rather different jobs than men. They therefore currently suffer far fewer industrial accidents and far fewer redundancies than men. They work shorter hours, travel shorter distances to work, retire earlier and have longer retirement.
An implication of full equality would be increases in female unemployment, industrial injuries and so on.
Superficial analysis of gender pay gaps of the type which the Guardian is perpetuating may be good for a headline but it really doesn’t help us to understand the complex workings of the labour market.
Big departments where men are paid a lot more than women are Business, Energy and Industrial Strategy (21%), The Cabinet Office (18%) and HM Treasury (also 18%). At the other extreme the Home Office has a gap of just 3% while Work and Pensions has no pay gap at all.
Now anybody who knows the Civil Service will realise that all major departments tend to have the same unions, the same pay structures and the same HR practices. It is therefore intrinsically unlikely that the differences can be adequately explained by variations in sexism and discrimination. As a Cabinet Office spokesperson points out, the pay gap is ‘affected by differences in seniority, profession and regional distribution of staff, which can be very different across departments and are not controlled for in the raw data’.
This is absolutely right, but this spokesperson is probably wasting his or her breath. It is clear that very few people take the trouble to understand data on pay gaps, and inevitably departments with particularly large gaps are going to be vilified.
This sort of analysis is soon to be applied to large organisations in the private sector. Well-known firms will be castigated if their pay gap looks out of line. What is worrying is what they may do as a consequence. For this crude type of indicator can be manipulated to improve a company’s public image and, unlike in the civil service, there will be a strong incentive to muddy the waters. For example, if you outsource low-paid female labour, you reduce the pay gap. Or if you only recruit women at high-paying grades rather than at entry level you also reduce the gap – though this may mean that young female labour market entrants get fewer opportunities. So women may be disadvantaged as a consequence of the government trying to improve their position.
There is another issue which I don’t think I’ve ever seen mentioned in this long-running debate. In order for the pay gap to vanish completely, men and women would need to have received the same types of education, entered the same types of job, undergone the same in-house training, worked the same hours, applied for promotion at the same rate, taken the same time out of the workforce and so on.
But if they did so, other types of difference would appear – and not to women’s advantage. This is because a significant part of the pay gap – as I argued a while back in Should we mind the gap? – arises from what economists term ‘compensating differentials’. Men doing less pleasant or risky or less secure jobs obtain a premium in the labour market to offset this. Women typically do rather different jobs than men. They therefore currently suffer far fewer industrial accidents and far fewer redundancies than men. They work shorter hours, travel shorter distances to work, retire earlier and have longer retirement.
An implication of full equality would be increases in female unemployment, industrial injuries and so on.
Superficial analysis of gender pay gaps of the type which the Guardian is perpetuating may be good for a headline but it really doesn’t help us to understand the complex workings of the labour market.
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