Lecture 7 - gender & ethnic pay gaps

Explain the issue of rhetoric versus reality in relation to pay gaps

• We must utilise the talents of ALL our employees

• Our aim is to reward our employees fairly and in line with the market..’

• Issues: Widespread discrimination in pay across various individual characteristics (gender, race, age and ethnicity)

What determines pay generally

• Characteristics of: individuals, the Job & Occupation

• The organisation (e.g. size, industry); some organisation like to pay more (efficiency wages), the organisation size affects monitoring

• Institutions: e.g. Trade unions via Collective Bargaining, National Minimum Wage Regulations, Occupational Licensing

• Discrimination

• The reasons above are all valid reasons (except discrimination) why people can earn more or less than others; women or men / white or black

How can we determine discrimination is the answer to a pay gap?

• When the determinants for pay no longer are sufficient explanations then we have to see whether if discrimination is the answer.

• A more educated man earning more than a women is not discrimination unless they are of equal characteristics (same level of skills, both work for big organisations)

• Less likely to find women in some degrees; But these jobs also happened to be some of the most highly paid degrees in the market but it is not discrimination because women are choosing to do other degrees

• The choice of subject that women go into inevitably has an influence on the earning regardless of the discrimination in the labour market

  % due to human capital (skills, experience, education)

  % due to occupational and firm characteristics

  % could not be explained=discrimination

Why women earn less than men? Economics, human capital theory

• Starting point: traditional division by gender in the household

• Women have lower incentives to invest in market-oriented formal education & on-the job training since the human capital acquired has a shorter pay-off period (shorter & interrupted work lives)

• Human capital that a woman acquires depreciates during the years she is engaged in household production; Inevitably when a women has children and does not work in the labour market her human capital depreciates

• Economist argue there is a rationale why women do not earn as much as men it is because of biological responsibilities

What role do employers play in the human capital theory?

• Firms less likely to invest in training if they expect women to have intermittent labour market attachment

• Women may avoid jobs that require large investments in skills which are unique to particular organisations (organisation-specific human capital), because returns to such investments are reaped with tenure

• Employers thus have less training for women because they know women have very low labour market attitudes

• Because of this attitude women may avoid jobs that require higher human capital

Criticisms of the human capital model explanations of pay gaps

• Lower wage persons also have less incentive to work.

  • did a woman’s weak labour market attachment lead to lower wages or

  • the lower wages discourage labour market attachment affecting household decisions (causality)

• Women experience discrimination in the labour market so seek out lower wage less discriminatory jobs.

• In a rationale household that wants to maximize profits, the man would stick to working after a couple has a child because their labour market attachment is more consistent, so if women generally earn less, it makes sense that after children, women would choose to stay behind to child rear because this is less loss

• Women have been shown to have lower turnover than men, so why employers less likely to invest in them?

Dual-labour market theory explanation of pay gaps

• believe pay gaps occur because of the characteristics of the job through two types of Occupational segregation

• Horizontal segregation: women disproportionately found in certain occupations and pay in these occupations tends to be low (e.g. hairdressing, retail, admin jobs)

• Vertical segregation: women are disproportionately found lower down in the hierarchy (e.g. less female than male CEOs)

• Due to; Lower labour market attachment, discrimination, boys clubs

• Why is is that we find women in these occupation that tend to pay less? More flexibility, less barriers to entering

Gender, skill & the social construction of disadvantage; a sociological explanation

• Skill definitions are saturated with ‘sexual bias’: under-valuation of women’s skills

• emphasis on manual labor and strength because the labor market has been male dominate for so long; these obtain more money in the labour market

• Relational aspects of jobs undervalued: e.g. caring, customer services and women tend to be associated with these more

Undervaluing of ‘women’s work’?

• Levanon et al. (2009): research using US census data from 1950 to 2000 – a period of rapid expansion of women in the Labour Force

• When women moved into occupations in large numbers, those jobs began paying less (even after controlling for education, work experience, skills, race and geography)

• Examples where women’s share increased:

  • Ticket agent -  wages fell 43%

  • Biologists - wages fell 18%

• Examples where women’s share decreased:

  • Computer programming was once female-dominated

  • When male programmers began to outnumber female ones, the job began paying more and earned prestige

Reasons for the ethnic pay gap

1. Characteristics of individuals

2. Characteristics of jobs and workplaces

3. Discrimination

• The key is to know how much the gap can be explained by (1) and (2)

• Some ethnic minorities are generally better educated than others so they are entering the labour market with higher levels of education

• They could be highly educated but they are not entering highly paid jobs

Discrimination

• Taste based models (Becker, 1957): employers have a ‘taste’ for discrimination and are willing to pay a penalty for their choices.

• The black worker may be more productive than a white worker, but employers do not want a black so pay the penalty for it 

• Statistical (Arrow 1973): employers have limited information about worker productivity so they resort to using statistical information on the group they belong to, infer productivity (self-reinforcing vicious cycle)

Discrimination and race

• Employers statistically discriminate on the basis of race when hiring unemployed workers, but learn about their marginal product over time.

• Explains why racial minorities have lower reservation wages

• Racial minorities incur larger losses with job separations (so tend to have higher tenures than whites- not always positive)

Gender pay gap reportings

• Overall mean and median gender pay gaps

• Mean and median of gender pay gaps in bonuses

• % of men and women receiving a bonus

• % of men and women in each quartile of the organisational earnings distribution

• Can also voluntarily include an explanatory commentary

• Applies to only to organisations with >250 employees

Government suggestions for organisations addressing the gender pay gap

• Include women in shortlists for recruitment & promotions

• use skill-based assessment tasks in recruitment

• use structured interviews for recruitment & promotions

• encourage salary negotiation by showing salary ranges

• introduce transparency to promotion, pay & reward processes

• appoint diversity managers & diversity task forces

• improve workplace flexibility for men and women

• encourage the uptake of shared parental leave

• set internal targets

• leadership development training

Advantages of mandatory pay gap reporting

• Makes gender inequality transparent

• Forces firms to tackle the issue

• Moves beyond mean/median pay gaps: % in quartiles, bonuses, etc.

• Informs women/minorities which are good and bad places to work (does it?)

• Improves record-keeping

• Companies can provide explanations for the figures they produce

Disadvantages of mandatory pay gap reporting

• Costly for organisations to administer

• How informative is this?; There are many other factors determining pay structures

• How would anyone know if organisations game the reporting? Or if the data are reliable?

• What to do if organisations fail to report? Is naming and shaming the right solution?

mandatory pay gap reporting may harm women’s potential labour market prospects

• For example, if a firm has a large gender pay gap would they hire more low-paid men instead of low-paid women?

• Could it put women off certain organisations or industries?

• Isn’t the gender pay gap already very low?

• Isn’t the main issue more to do with segregation into different occupations and sectors than pay?

• Gender inequality is not all about pay!

mandatory pay gap reporting is problematic to report

• Reporting is only at the organisational-level, so not very informative about individual workplaces or occupations : Ryan Air and EasyJet have HUGE gender pay gaps

• Another box-ticking exercise: 70% of firms provided no narrative indicating low-level engagement with the exercise (down from 2018)

• Coverage: about 1/2 the labour market not covered by this regulation: Self-employed and SMEs excluded – where more women work and where the GPG is biggest

Addressing the Ethic Pay Gap

Unconscious bias training

Limitations of unconscious bias training:

• Noon 2018: ‘unconscious bias training’ is a diversity intervention that is unlikely to help eliminate racism in the workplace. Knowing about bias does not automatically result in changes in behaviour by managers and employees.

• Tests find almost everyone is biased

• Has no effect on everyday racism (structures & systems can reinforce everyday racist behaviors that go unrecognized)

PWC Ethnic Pay Gap report

• 95% of companies have never analysed their ethnic pay gaps

• 75% don’t even have the data to do it

• Even when organisations collected data, many workers don’t report it

• Should firms be able to force people?

• Won’t missing data bias any statistics?