The gender pay gap

In July 2015, UK Prime Minister David Cameron set out plans to force UK firms to publish their gender pay gap and in so doing positioned the UK as one of the first countries to make gender pay reporting mandatory. Similar policies have recently been introduced in Germany and Austria.

A gender pay gap refers to the difference in average pay between men and women, with women’s average pay expressed as a percentage of men’s, as shown:

For example, if the average pay of employees in a firm is £35 per hour for men, and £25 per hour for women, then the pay gap is:
The phrase ‘pay gap’ is, by default, expressed in terms of men being paid more than women – when women earn more than men, the difference is referred to as a ‘negative’ or ‘inverse’ gap.

The underlying assumption behind the initiative is that a pay gap based on gender is inefficient and represents a significant opportunity cost to an economy in terms of lower national productivity and international competitiveness. According to research by McKinsey (2016, The Power of Parity: Advancing women’s equality in the United Kingdom), eliminating the gender pay gap could add as much as £150bn to the UK national income by 2025.

Building a body of evidence on pay is designed to help government (and firms) analyse the causes of pay disparities as well as help formulate policies to deal with the pay gap. Tracking changes in data will also help assess the possible impact of policy changes on the gap.

Who needs to publish their data?

All employers with a headcount of 250 employees or more must publish their figures, with the deadline of March 31st (2018) for public sector employers and April 5th for private sector employers. This will involve around 35% of all UK firms.

Collection of the data is aimed at building an ‘evidence base’ to enable government to raise awareness of the current and changing gender pay gap. While the requirement aims to discover more about the gender pay gap, it does not focus on differences in rates of pay for comparable jobs, which is the focus of the equal pay legislation.

What must be published?

Firms must publish six calculations:

  1. The average ‘mean’ gender pay gap
  2. The average ‘median’ gender pay gap
  3. The average ‘mean’ gender pay gap for bonuses
  4. The average ‘median’ gender pay gap for bonuses
  5. The proportion of males and females receiving bonuses
  6. The pay gap existing in four levels of pay

Where are the results published?

Results must be published on the firm’s website and the relevant government website, as well as being confirmed by an ‘appropriate’ person.

What else is expected?

Firms may offer a comment on the figures they upload, identifying any reasons why the gap exists along with any policies and plans to reduce the gap.

What do we know so far about the gender pay gap, and the possible causes?

Each year since 1997 the UK’s Office for National Statistics (ONS) has published results of its Annual Survey of Hours and Earnings.

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The ONS uses median, rather than mean, earnings as its ‘headline’ measure, given that the median is unaffected by very extreme values, which can skew the mean and distort the analysis. However, figures measuring the mean average are widely considered to be more useful as they highlight the impact of the ‘crowding’ effect, with the highest paid jobs favouring men, which drags up the mean average for men, while leaving the median largely unaffected.

For example, the TUC looked at the top 10% of earners and found that (see analysis of official statistics) the highest paid men are paid 54.9 per cent more than their female colleagues.

While many of the causes of the gender pay gap relate to employment itself, and to the nature of work and working patterns, many other factors originate outside the workplace, and are derived from stereotyped gender roles and cultural prejudices regarding the role of men and women.

The most recent ONS survey, published in October 2017, identified the following workplace-related factors which are included in their statistical models.

Occupational group

There was a gender pay gap for full-time workers in favour of men for all nine major occupational groups, but this gap narrows in those industries where equal numbers of men and women are employed.  According to the ONS, occupation makes the single biggest contribution to the gender pay gap (at 23%) with occupational ‘crowding’ commonly found.

Age group

The gender gap gets wider the older the age group considered. In fact, at the very youngest end of the labour market, there is a gap in favour of women (a negative pay gap), but this declines with age and by 40 onwards the gap accelerates, and peaks between 50 and 59.

While pay grows throughout a working life, it grows at a slower rate for women, and stops growing at an earlier age for women.

Working patterns

Different working patterns, such as full-time and part-time and flexi-work, contribute some 9% of the difference between men and women.

Full-time vs part-time

The latest ONS figures highlight the significance of full-time vs part-time remuneration, with 42 per cent of women working part-time and only 12 per cent of men. This is significant in that hourly earnings of full-time workers tend to be higher than part-time workers. The number of hours worked has a clear impact on the average hourly rate (and not just the total pay received). Where the length of hours worked is low (between 10 and 30 hours) the gap is actually in favour of women.

If we just consider part-time work in isolation, there is an inverse gap in favour of women. If we exclude part-time work completely, then the gender gap is much smaller.

Clearly, more men are crowded into employment which is both full-time and typically higher paid.

The dual market hypothesis

The evidence clearly lends some support to the ‘dual labour market’ hypothesis, which considers how a labour market may be segmented into a ‘primary’ element, involving full-time, permanent work which is relatively secure and better paid, with a clear career progression, and a ‘secondary’ element, in which workers are employed on a part-time basis, with less security, lower unionisation, and is less well paid. The tendency is for more men to be employed in the ‘primary’ sector, with more women in the ‘secondary’ sector.

The hypothesis suggests that, once a worker has joined a given segment of the labour market they tend to stay there for a large part of their working life.

Other factors

The ONS concluded that around two-thirds of the possible causes of the pay gap fell outside of their model and as such were ‘unexplained’.

The unexplained employment-related factors appear to be mainly associated with education, career breaks and family structures. For example, the number of children, the age of children, whether parents are being cared for, years spent in school and the level of qualifications are all possible factors, but not currently analysed or understood by the ONS.

Social factors

In addition, the independent Advisory, Conciliation and Arbitration Service – ACAS) has identified a number of social and psychological factors that can help explain the gender pay gap. These factors include constrained individual choiceunconscious bias and discrimination.

In terms of choice it is not easy to establish the relative impact of personal choice and choice which is constrained by a lack of opportunity and discriminatory employment practices. While women may be keen to seek promotion to senior roles they are either discouraged from seeking promotion or not encouraged to seek promotion as a result of a lack of senior female role models, an absence of mentoring and sponsorship, few networking opportunities, and assumptions that mothers might not accept promotional opportunities.

The imposition of a mandatory requirement to disclose the level of the gender pay gap is expected to raise awareness of the significance of the gap in terms of efficiency and productivity and help firms and policy makers better understand the gap, why it should be closed, and how to close it.

See also:

Zero-hours contracts

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