The pay gap

The gender pay gap exists. It is the difference between the average earnings of male and female employees as a percentage of male earnings. I repeat: it exists. It is currently around 14 per cent across all the sectors of the Irish economy.

My column last week explored three arguments for the pay gap’s existence.

One argument: women are different to men, so pay gaps make sense. Another: because they have kids, women are ‘men-minus’, which policy can compensate for. Yet another: the structure of the system makes it harder for women to earn the same as men.

I looked carefully at the latest research on the gap’s existence and persistence. I concluded the problem lies with the structure of the system itself.

The goals set by management, which workers must meet to get promoted, are ‘gendered’. The goals are set by dudes, for dudes. We won’t end the gender pay gap unless the goals themselves change. Gender pay gaps are leadership issues, not HR issues.

You don’t solve the gender issue with courses, exhorting women to ‘lean in’, or with more and more education. Education, all the research shows, helps. More women leaders will help. Transparency in pay will help. You solve it by changing the system itself.

The reaction to last week’s column shocked me. Many women expressed surprise at the extent of the gap. Many were happy I was making the points. Many men expressed shock I was bringing it up at all.

But the data says what it says. Every study says a version of the same thing: the gap exists. I’m not sure I can be much clearer than this: the gender pay gap exists, and depending on the sector you work in, it is large. It has shrunk since the 1940s because female education levels have achieved and surpassed parity with males, but it is still there.

The gender pay gap is not a matter of giving women some cash to go away. It is not a matter for women at all, actually. Gender balance is a matter for both men and women.

Selective use of case studies

When it comes to pay gaps, think averages and distributions, not extremes.

Many arguments for and against gender parity are compositional in nature. People argue using case studies which flatter their points of view. For example: in fashion, female models earn more than male models.

In financial services, men earn more than women. Most health sector workers are women, but they are under-represented in high-paid jobs. Divorce law favours women, not men, when it comes to apportioning custody.

These are all fine as talking points, case studies and Twitter rants. But you don’t make policy on case studies or Twitter rants, unless you’re Donald Trump. You have to look at the distribution.

Gender matters across the income distribution; 65 per cent of all low wage earners are women.

In 2010, 8 per cent of all company directors in Ireland were women. In 2011, 11 per cent were. In 2016, 16 per cent of all company directors are women. Should the trend continue, we can expect gender parity on company boards by 2049. On a typical day in Ireland, men do six hours’ paid work and two hours’ unpaid work. Women in Ireland do on average three hours’ paid work and five hours’ unpaid work. This is a typical sharing out of work in most advanced economies. Yet society asks them to compete as equals with men. The solution to the problem from the corporate sector is for women to work harder. We tell women to ‘lean in’, but still do the dishes.

Domestic labour is not valued in most economic studies. If we put a price on domestic labour, you can guarantee it would be. Women do most domestic labour. If they formed a union and decided to strike, the economy would stop. This tells you the work has some value. Society gets this work for free.

RTÉ and the BBC have released their top earners’ salary gaps. These lists produced the predictable outcry because most of the people on them were men. The interest in this list is misleading.

The important information is the entire distribution of earnings by firm. We must first see the spread from the lowest earners to the highest. Only then can we understand the sectoral determinants of the gap. RTÉ and the BBC need to show the gender pay disparity from the lowest paid worker to the highest.

We must understand the average male and female earning potential by sector. It is not enough to think about gender balance ‘at the top’.

The top of the earnings table is where we will see imbalances by dint of talent, tenure, or sheer luck. Ditto for the bottom of the earnings table. It is the average that matters.

Eurostat captured data on the gender pay gap from the early 2000s to 2014. They used the structure of earnings survey. Morgan McKinley reported data from 5,500 respondents in Ireland in 2016. The trends are the same across both surveys. We’ll look at the McKinley data as it is newer.

Surprising pay gap facts

You can see the gender pay gap by sector in the illustration. The results are surprising. Women in financial services earn 29 per cent less than men. Women in the charity sector earn 22 per cent less.

Women in media earn 15 per cent less. Women in services and tourism earn 4 per cent less than men. Gender pay parity is fine for the low paid. When bonuses are a large part of earnings, as they are in finance, gender composition matters. Women get a bonus of €3,000 on average in this survey. Men get €6,000.

When you look at the skill types McKinsey surveyed, you find fascinating results.

There is almost no gender pay gap for accounting and audit, or big data type work. The gap is less than 5 per cent in all cases. Accounting is a closed profession demanding adherence to one set of norms. As a profession, accounting has adopted gender balance policies.

Big data type work has no professional structure, but demand for this work is so high, gender seems not to matter. Sales commands a gender pay gap of 23 per cent. The only pay gap in favour of women is HR, where women earn 15 per cent more than men.

Experience matters. The figure shows you average salary levels in euro by years of experience. From 0 years to 5 years, the average man earns €56,000; the average woman earns €44,000. This gap narrows as years of experience changes from six years to ten years.

The narrowing shows the labour market recognising productivity increases. The gap then grows after ten years of experience. What causes this gap? Mostly children and caring duties. Not ‘leaning out’.

Erling Barth and co-authors studied this moment in women’s labour market choices. They looked at the US, where the data is much better. They had data at the individual household and firm level over a decade. They took account of education, years of experience, the sector people were working in. Barth found that almost all the remaining gender pay gap came from a lack of mobility.

After a certain time in the labour market, relating to the period around early childcare, women weren’t moving as much as men. Moving jobs is the key mechanism to increase pay. There’s no reason to imagine the Irish labour market is very different from the US. Our maternity pay regime actually exists, but that’s about it.

Work intensity matters

Ireland’s households have a problem with work intensity. We measure work intensity by relating a household’s capacity to work to their actual working status.

Across the euro area, the proportion of households living in very low work intensity households was nearly 12 per cent. It goes without saying low work intensity households are poorer ones. In Ireland, the number is nearly 20 per cent. No prizes for guessing this statistic is ‘gendered’ as well. You are much more likely to be in a low-work intensity household with a female head of that household than a male head.

There are two arguments about how to fix the problem of work intensity. Right wing people point to Ireland’s generous benefits system. They suggest the scale of benefits creates a poverty trap. The solution is reduction of benefits in real terms, plus re-training.

Left-wing people suggest spending more on services like free childcare to help move people into the labour market. The evidence suggests moving spending from cash-based benefits to childcare-based services is preferable.

Private sector transparency is not enough

Everyone has taken the opportunity to have a pop at RTÉ and the BBC. These public bodies are easy to take a hit at. Private companies? Less so.

In Ireland there are more than two million workers. Only 389,000 of them work in public sector bodies or semi-states. Transparency in pay by gender across every firm makes perfect sense, but it has to happen in the private sector first.

Compelling the private sector to disclose pay gaps won’t change anything. What’s one more statistic? What will change things is people’s labour market decisions. Here it all comes down to mobility.

If women think they have a better chance of earning the same as men in firm A, then they will move to firm A, but only if they can move. Here we can see a role for policy. Helping increase mobility will change the system. Exposing gender pay gaps by sector will help. Ultimately these are just descriptions of the system as it exists today. They are indicators of success, or failure. Only when you change the system will you end the gender pay gap.