Pay gap or comparison error?

April 13, 2016 happy-admin

by Bonnie – 13th April, 2016

In Australia, for every $1 men earn, women earn 81.2 cents. We all know the stats, but are we actually drawing the right conclusions?

Is our pay gap based on gender discrimination or are there other factors muddying the waters?

Do yourself a favour and listen to the Freakonomics podcast with Claudia Goldin, Professor of Economics at Harvard University where she investigates the economics behind the global gender pay gap crisis. Her insight blew me away and her most pertinent points are here for you, like a plate of freshly washed strawberries, ready to devour.

  • When we compare pay, are we comparing equal individuals and equal work? What economists have found is that when you remove productivity differences and look for individuals with the same education, and the same labour force participation rates over their lifetime, we still get a ratio less than 1. Does this mean women are receiving lower pay for equal work? Possibly, but there is most definitely something else tipping the scales.
  • We no longer live in a society where “smoking guns” can get away with discrimination, whether for ethnicity, gender or age. What we find these days is “wage discrimination” and it is less easy to uncover.
  • Longitudinal studies show that wage between the genders is on par through university, and well into the first 10 to 15 years of their career. Statistically, it doesn’t look like men are better bargainers or more competitive to compensate for the gap that ensues. 10-15 years out of university however, we see large differences in pay. We also see large differences in where they are, their job titles and it often occurs a year or two after a child is born, and it affects predominantly the women, not men. At this point, women often value temporal flexibility in order to provide care, whether to parents or children, where men value income growth. Flexibility comes at the expense of high salary, promotional opportunities, and ability to travel for work of which the inadvertent flow on affect is a limitation to their career advancement and earning potential.
  • Utilising the 469 Census confirmed unique job roles, it is apparent that certain roles are more heavily concentrated with men or women. Comparing apples with apples means comparing a unique role and determining the reasons behind gender domination and whether like-for-like positions are remunerated on par. There are roles much more heavily concentrated with a certain gender and we need to evaluate why this is the case and whether these jobs offer higher degrees of temporal flexibility. Putting a dollar value on flexibility could offset a lot of the actual salary dollar differential. The good news if this is the case, is that discrimination is not the main culprit of gender pay gap.
  • As an example, law school graduates from the same law school enter a law firm at the same job level, and they are likely to be offered a salary within 95% of each other. This continues and they both find partners, get married and start families. The woman is then requiring flexibility for her family responsibilities, and changes firms to a smaller practise with less demand and increased flexibility in hours to satisfy all her responsibilities. The woman will return to work part time for a few years, and not have the time to travel or work extended hours due to her caring responsibility. The man is therefore offered the promotions as he is seen to be more committed with more to offer in return. This scenario, extrapolated out to scale, is the most likely cause for the gender pay gap.
  • While there is most likely to be a gender pay gap in some companies and industries when comparing apple for apple roles, this only accounts for ¼ of the pay difference. The other ¾ is due to the women choosing more flexible positions and concentrating within roles which tend to pay less than men.

What are your thoughts on Australia’s gender pay gap and what are your companies doing to trail blaze the issue?