Women in the UK on average earn less per hour than men. According to the Annual Survey of Hours and Earnings, the mean hourly pay for women in 2015 was 17.5% less than that for men. This figure is for all employees, full and part time. As far as full-time employees is concerned, the gap was slightly smaller at 13.9%. Nevertheless, as you can see from Table 6 in the linked Excel file, these gaps have decreased in recent years – but only slightly.
A recent paper from the Institute for Fiscal Studies has disaggregated the figures to give a better picture of this wage gap. It finds that having children is a major contributing factor to the gap. It also finds that this has a bigger impact on the earnings of graduates and those without a degree but with A levels.
On entry to the labour market, men and women earn roughly the same. People’s wages tend to rise during their 20s, but men’s rise slightly faster than women’s, causing a pay gap to open and widen – but slowly at first. Average (mean) men’s wages continue to grow during their 30s and a bit during their 40s. However, average women’s wages flatline. Thus the wage gap grows substantially, especially for the higher educated.
The paper argues that the arrival of children is a major contributing factor to this picture. It looks at the gap before and after the arrival of children. “The crucial observation is that the gap opens up gradually after the first child arrives and continues to widen for many years after that point.” By 12 years after the first child is born, the wage gap has widened to 33%.
The paper does not offer reasons for the small gap that exists before the arrival of children. But it does give possible reasons for the widening gap after having children. A major one, it suggests, has to do with labour market experience.
“As women are likely to do less paid work after the arrival of children, the level of labour market experience they have falls further and further behind that of their male counterparts, and the wage gap therefore widens.” They may also miss out on promotions.
Each year a woman spends away from the labour market is associated with an average 2% drop in pay compared with those who remain in work. For those with at least A levels, the penalty is 4%; but there is no drop in pay for those without A levels.
Other possible explanations include mothers taking work that requires a lower skill level, and at lower hourly pay, in order to gain flexibility in working hours. However, the evidence suggests that women who move to part-time work on having a child suffer no immediate drop in pay. But their hourly pay does grow more slowly, thus contributing to a widening of the gap.
Another explanation is employers exercising market power to discriminate against women with children. The paper does not consider this explanation.
The articles discussing the paper look at policy implications and identify various things that can be done to narrow the gap. Read the paper and articles and try answering the questions below.
Videos and podcasts
IFS: gender pay gap widens after first child Compendium of News Reports from BBC News at Six, Channel 4 News, ITV News at Ten and BBC Newsnight from Incorrigible Forever on YouTube (23/8/16)
Gender Pay Gap Hits Women With Children Hardest Sky News (23/8/16)
In Business: Supportive partner = success at work World of Business, BBC Radio 4, Peter Day (25/8/15)
Gender Pay Gap More or Less, BBC Radio 4, Tim Harford (26/8/16)
Gender pay gap: Why do mums increasingly earn less? BBC Victoria Derbyshire programme (23/8/16)
UK women still far adrift on salary and promotion as gender pay gap remains a gulf The Guardian, Katie Allen (23/8/16)
Gender pay gap: mothers returning to work earn a third less than men The Telegraph, Tim Wallace (23/8/16)
Mothers’ pay lags far behind men BBC News (23/8/16)
Four ways the gender pay gap isn’t all it seems BBC News Magazine, Simon Maybin (29/8/16)
Six ways to tackle the gender pay gap BBC News, Emma Atkinson (23/8/16)
Wage gap for UK women unchanged in 20 years Financial Times, Gemma Tetlow (23/8/16)
The UK’s slow march to gender pay equality Financial Times (23/8/16)
Gender Pay Gap For Mothers Widens For 12 Years After Having Children, New Research Finds Huffington Post, Jack Sommers (23/8/16)
Motherhood costs women a third of their salary compared to men, report reveals Independent, Joe Watts (23/8/16)
The gender pay gap means that more women will be in poverty later in life – but there is something the government can do Independent, Claire Turner (26/8/16)
Gender pay gap won’t close until 2069, says Deloitte The Guardian, Katie Allen (24/9/16)
Papers and Reports
Gender wage gap grows year on year after childbirth as mothers in low-hours jobs see no wage progression IFS Press Release (23/8/16)
The Gender Wage Gap IFS Briefing Note BN18, William Elming , Robert Joyce and Monica Costa Dias (23/8/16)
Women in STEM: Technology, career pathways and the gender pay gap Deloitte (September 2016)
Gender pay differences: Annual Survey of Hours and Earnings: 2015 Provisional Results ONS Statistical Bulletin (18/11/15)
All data related to Annual Survey of Hours and Earnings: 2015 Provisional Results ONS datasets (18/11/15)
ASHE 1997 to 2015 selected estimates (See Tables 1 to 4, 6 and 9) ONS dataset (18/11/15)
All Employees – ASHE: Table 1 ONS dataset (18/11/15)
- Identify possible reasons for the wage gap between men and women.
- Why is the median wage gap different from the mean wage gap?
- Why is the wage penalty for periods without work greater for more highly educated women?
- To what extent is the gender wage gap a reflection of marginal productivity differences?
- Is the gender pay gap primarily about men and women being paid differently for doing the same job?
- What evidence is provided by the Chartered Management Institute (CMI) on women’s lack of pay progression?
- What could the government do to reduce the wage gap?
- Discuss the relative effectiveness of different policy alternatives.
The earnings gap between men and women is well-documented and depending on how we measure it, we get different figures. One of the most common measures is mean earnings per hour. The latest estimates suggest that women are paid around 20% less than men, though other data does give lower figures. Though actions have been taken to reduce the inequality between men and women, it still persists in many areas and this has led to plans for new league tables from Nicky Morgan.
The inequality gap has certainly come down. Back in 1970, the wage differential was around 37 per cent, so progress has been made, although the wage gap in the UK has stabilised somewhat. The gender wage gap is at least in part explained by occupations, as women have tended to be prevalent in some of the more poorly paid occupations. However, significant earnings differentials still exist within occupations. We see fewer women in the more senior positions; women tend to take career breaks and hence this can cause more investment into training and promoting men. Furthermore, we often simply see some form of prejudice or discrimination whereby women are just paid less than men, despite the Equal Pay Act.
As a means of combatting this inequality, Nicky Morgan, the Women and Equalities Minister, has announced plans that will require private companies and voluntary organisations employing more than 250 workers to reveal their pay gap. They will have to produce this information online and this will a means to bring down the inequality that exists between men and women in the same occupations. The first League Table of this pay gap will be published in April 2018 so companies will have to begin compiling the information from April 2017. This has received criticism from some, as it is not starting soon enough, but it is seen as a step in the right direction.
Carolyn Fairbairn, CBI Director-General warned that these League Tables shouldn’t be used to name and shame firms, as many factors might explain wage differentials. She noted:
“Where reporting can be useful is as a prompt for companies to ask the right questions about how they can eradicate the gender pay gap … The government should consult closely with business to ensure that this new legislation helps close the gender pay gap, rather than ending up as a box-ticking exercise.”
Clearly there are some close links between the gender pay gap and concerns about poverty and minimum wages and although the League Tables perhaps should not be used to name and shame, one might think it is inevitable that this is how they will be viewed. The following articles consider Nicky Morgan’s inequality plans.
Gender Pay Gap European Commission
Annual Survey of Hours and Earnings, 2015 Provisional Results Office for National Statistics (November 2015)
Pay gap reporting Equal Pay Portal2016
Gender pay gap reporting for big firms to start in 2018 Guardian, Rowena Mason (12/02/16)
Gender pay gap to be revealed by employers to tackle inequality Financial Times, Sarah O’Connor (12/02/16)
Firms forced to reveal gender pay gap BBC News (12/02/16)
Gender pay gap League Tables to ‘name and shame’ companies Telegraph, Steven Swinford (12/02/16)
UK companies must reveal gender pay gap under new plans Independent, Oliver Wright (12/02/16)
Companies told to publish gender pay gap Sky News (12/102/16)
Gender pay gap: Business groups mixed on Nicky Morgan’s new name-and-shame plans International Business Times, Bauke Schram (12/02/16)
Now every firm with more than 250 staff must put gender pay gap data online in move to encourage companies to reward staff equally Mail Online, Jack Doyle and Rosie Taylor (12/02/16)
- Use a labour market diagram to explain how gender pay gaps can emerge based on different marginal products.
- How can gender pay gaps emerge because of women taking career breaks and being less geographically mobile?
- Use information on the ONS website to compare pay differentials across occupations. Are the biggest and smallest differentials where you would expect?
- There are numerous reasons why men have traditionally been paid more than women. Which reasons could be said to be irrational and which are rational?
- If employers were forced to give genuinely equal pay for equal work, how would this affect the employment of women and men? What would determine the magnitude of these effects?
- Do you think this naming and shaming will be effective in reducing the gender pay gap amongst the largest companies? Can you suggest any other policy options?
- If the Equal Pay Act is in place, why can companies still pay women less?
Pay rises have been few and far between since the onset of recession – at least that’s the case for most workers. Pay for private-sector workers rose by 2.7% on average over the past year and for many in the public sector there were pay freezes. But, one group did considerably better: directors. According to the Incomes Data Services (IDS), over the past year, the average pay of the directors of the FTSE 100 companies has increased by almost 50%. Not bad for the aftermath of a recession! Much of the increase in overall pay for directors came from higher bonuses; they rose on average by 23% from £737,000 in 2010 to £906,000 this year.
Unsurprisingly, politicians from all sides have commented on the data – David Cameron said the report was ‘concerning’ and has called for the larger companies to become more transparent about how they set executive pay. How much difference transparency will make is debatable. However, Martin Sorrell, Chief Executive of WPP defended these pay rises, by comparing the pay of directors of UK companies with their counterparts in other parts of the world.
However, this defence is unlikely to make the average person feel any better, as for most people, their overall standard of living has fallen. With CPI inflation at 3.3% in 2010 (and RPI inflation at 4.6%) a person receiving the average private-sector pay rise of 2.7% was worse off; with a pay freeze they would be considerably worse off. Essentially, buying power has fallen, as people’s incomes can purchase them fewer and fewer goods.
However, the data have given David Cameron an opportunity to draw attention to the issue of more women executives. He believes that more women at the top of the big companies and hence in the boardroom would have a positive effect on pay restraint. However, this was met with some skepticism. The following podcasts and articles consider this issue.
Podcasts and webcasts
Directors’ pay rose 50% in past year BBC News, Emma Simpson (28/10/11)
‘Spectacular’ share payouts for executives BBC Today Programme, Steve Tatton of Income Data Services (29/10/11)
Sir Martin Sorrell defends top pay BBC Today Programme, Sir Martin Sorrell, Chief executive of WPP (28/10/11)
‘A closed little club’ sets executive pay BBC Today Programme, John Purcell and Deborah Hargreaves (28/10/11)
Cameron says Executive pay in U.K. is ‘Issue of concern’ after 49% advance Bloomberg, Thomas Penny (28/10/11)
Directors’ pay rose 50% in last year, says IDS report BBC News (28/10/11)
Cameron ties top pay to women executives issue Financial Times, Jim Pickard and Brian Groom (28/10/11)
£4m advertising boss Sir Martin Sorrell defends rising executive pay Guardian, Jill Treanor and Mark Sweney (28/10/11)
Executive pay soars while the young poor face freefall: where is Labour? Guardian, Polly Toynbee (28/10/11)
My pay is very low, moans advertising tycoon with a basic salary of £1 MILLION a year Mail Online, Jason Groves and Rupert Steiner (29/10/11)
More women directors will rein in excessive pay, says David Cameron Guardian, Nicholas Watt (28/10/11)
David Cameron and Nick Clegg criticise directors’ ‘50% pay rise’ BBC News (28/10/11)
The FTSE fat cats are purring over their pay but that’s good for the UK The Telegraph, Damian Reece (28/10/11)
IDS press release
FTSE 100 directors get 49% increase in total earnings Incomes Data Services (26/10/11)
- What are the arguments supporting such high pay for the Directors of large UK companies?
- How are wages set in a) perfectly and b) Imperfectly competitive markets?
- Why is the average person worse off, despite pay rises of 2.5%?
- Why does David Cameron believe that more women in the boardroom would act to restrict pay rises?
- To what extent do you think that more transparency in setting pay would improve the system of determining executive pay?
- Do senior executives need to be paid millions of pounds per year to do a good job? How would you set about finding the evidence to answer this question?
- Is the high pay of senior executives a ‘market’ rate of pay or is it the result of oligopolistic collusion between the remuneration committees of large companies (a form of ‘closed shop’)?
- What would be the effect over time on executive pay of remuneration committees basing their recommendations on the top 50% of pay rates in comparable companies?
Approximately 1.6 million past and present female employees of Walmart have had their sex discrimination case dismissed by the US Supreme Court. This case began almost 10 years ago with claims by 5 female workers that they were paid less than their male counterparts and had been passed over for promotion. Despite statistical evidence suggesting a case of sexual discrimination, it was ruled that Walmart was not discriminating against women, as promotion decisions were made by individual managers, hence there was no common element between the plaintiffs. Justice Antonin Scalia said that a common element was ‘entirely absent here’.
Discrimination of any kind will have an impact on the demand curve for labour (or the marginal revenue product curve). As such, the equilibrium wage rate will also be affected: if a firm believes that women are less productive than their male counterparts, the MRP curve will shift inwards, pushing down their wage. The key to this case was that there were so many plaintiffs and so it was practically impossible to determine whether or not pay differentials and promotions were based on legitimate grounds. The following articles consider the case against Walmart.
Supreme Court decision in Walmart class-action claim brings praise, anger FoxNews (20/6/11)
Walmart wins class action ruling Financial Times, Barney Jopson (20/6/11)
Wal-Mart women denied discrimination class action BBC News (20/6/11)
Walmart sex discrimination class action rejected Guardian, Dominic Rushe (20/6/11)
- Why might a firm engage in discrimination?
- Use a diagram to illustrate the impact of discrimination against women by a firm on the marginal revenue product curve for women.
- Following discrimination against women and in favour of men, what happens to the men’s marginal product curve?
- Given your answer to the above 2 questions, what would you expect to happen to the equilibrium number of male and female workers and the male and female wage rate?
- Are there any adverse effects to a firm of engaging in discrimination of any kind?
Ahead of Lord Davies’s report on Boardroom equality, he will be somewhat alarmed by the survey results carried out by the Institute of Leadership and Management, which found that 73% of women felt that they still face barriers to top-level promotion. Quotas are a suggestion to break down this barrier. As Sheelagh Whittaker, a non-executive directive of Standard Life said:
‘I am a big supporter of quotas. I believe that we will only have true equality when we have as many incompetent women in positions of power as incompetent men.’
However, others say that quotas are not the answer, as they don’t actually change the fundamentals. Forcing compliance for equality in the workplace is not the same as equality in the workplace. There are a number of other reasons behind fewer women in top level positions, including less confidence and ambition, a more risk-averse attitude to promotion, as well as more women than men aspiring to run their own company, rather than seek promotion within a firm. So does discrimination still remain in the workplace or are there other explanations for the fact that only 12% of FTSE 100 directors are women?
Women still face a glass ceiling Guardian, Graham Dnowdwon (21/2/11)
Female managers say classing ceiling intact – survey BBC News (21/2/11)
The ‘glass ceiling’ is all in the mind: women lack confidence and ambition at work says new survey Daily Mail, Steve Doughty (21/2/11)
Women hit glass ceiling while report rejects boardroom quotas Independent, David Prosser (21/2/11)
Poll: Glass ceiling still a barrier The Press Association (21/2/11)
Men not to blame for the glass ceiling The Australian, Jack Grimston (21/2/11)
- How are equilibrium wages determined in perfect and imperfect markets?
- Is it efficient for a firm to pay men more than women or to hire/promote more men than women?
- Illustrate the concept of discrimination against women in the labour market. Think about the effect on the MRP curve and hence on equilibrium quantity and wage. How does this affect the MRP curve for men?
- What are the other causes of less women being FTSE 100 directors besides ‘the glass ceiling’?
- To what extent would a quota be effective in achieving gender equality in the workplace?
- Are there any other policies that could be used to tackle discrimination of any kind? What are the pros and cons of each?