15 September 2016
Caught in the gender trap
Is there still a real gender pay gap and, if so, what can we do about it?
by Frank O’Nomics
It was the morning after the night before. The late-80’s dealing desk at which I worked had been reduced from 12 to 4, and I was perusing the new seating format. What struck me first was that there was one name that had been rubbed out, suggesting that this person had initially survived the cull, but had subsequently been removed. Was it a coincidence that this person was a young woman who had that week announced to senior management that she was pregnant? One would hope that we have moved on from this bias (conscious or unconscious) against women in the work place and that, if men and women do the same job in the same industry they will be paid the same and have the same opportunities for promotion.
The statistics sadly do not bear that out. The overall pay gap between what men and women earn has come down from 28% twenty years ago to around 18% now, but that is largely due to more women going into further education than in the 1990’s, and so accordingly being able to command higher pay. Further, when one looks at the pay levels of these educated women, they have not made any progress in narrowing the gap – all of the improvement has taken place at lower pay grades. What seems to be driving this is the impact on earnings of having children, and a recent Institute of Fiscal Studies report, commissioned by the Joseph Rowntree Foundation, has demonstrated that the gap between the pay of men and women actually continues to widen for those women who have returned to work after having children. The most shocking statistic was that, 10 years after coming back to work, women are paid around 35% less than their male counterparts.
According to the IFS, while the average hourly wage for working women without children is 6% less than that for men, those that come back to work see an 18% gap after 10 years and, when one looks at this on a weekly basis, the gap increases to 36% due to the fact that so many women work part-time. The JRF argues that women face a “sticky floor”, where they are often not considered for a promotion or a pay increase, particularly if they are not full-time. The statistics bear this out, with women accounting for 73% of the workforce at entry or junior level, a number which falls to 42% at a senior management level and 32% at director. These statistics require some careful thought as the extreme differences between the pay of men and women may have some logical explanations but, even if we can justify the pay differences (and that is hard to do), there does seem to a great loss of potentially productive talent due to the structure of our labour markets.
First of all let’s examine the reasons why men and working mothers are apparently paid so differently. To begin with, women who take time out of work to have children miss out on the pay rises that occur during their absence. This equates to around 2% per year out for most, or 4% per year for better educated women. Then, those who do return to work are more likely to be working part-time, and once anyone moves to working part-time they are liable to miss out on the wage progression that full-timers enjoy. The difference between the pay rates and promotion success of men and women can in this sense be regarded as a motherhood penalty. The question is: how can this be addressed? Such levels of disparity inevitably lead to many women being discouraged from going back to work, or feeling a high level of injustice if they do. But first let’s just reassure ourselves that women really are being given a bad deal.
Alison Wolf, a cross-bench peer, has argued that there is no substantive difference between the pay of men and women, and “no pervasive difference that needs tackling”. She argues that men and women with the same level of education, doing the same job in the same industry will be paid the same, ie there is no gender pay gap. For anyone starting out in their careers this would seem to make sense – apprenticeship and graduate pay does not discriminate between the sexes. She argues that the overall difference in pay comes, first of all, from more women doing many of the jobs where pay is both traditionally low, and in industries which have seen little pay growth for some time. She then goes on to highlight the points above: women are much more likely to be working part-time and hence to be paid less overall. However, while Ms Wolf may be content with the situation, some big concerns remain.
First should women be ignored for promotion and pay rises just because they are working fewer hours? This suggests that employers may be abusing their position, with women coming back from maternity leave having little choice but to go back to their previous employer. Second, is the prevalence of this situation causing many women not to go back to work, thereby depriving the economy of a well-trained and able talent pool? Third, low pay for women creates a much longer-term problem for our society. If women are being paid less they save less and will receive a lower pension. The average net income of female pensioners is already only 85% of that of men and more than two-thirds of pensioners living in poverty are women. There is no quick fix for any of this but there are a number of ways which have been suggested as a start.
Nicky Morgan, the former minister for women and equalities, has recommended that the government require employers to report on the number of men and women in each quartile of their pay distribution. This would not seem arduous and would create a healthy degree of discomfort for those with serious imbalances. It might also have an impact on their share prices, as many SRI funds pay great attention to the degree of diversity displayed by the firms in which they invest. Vicky Price has recommended a quota system as being needed to support young women in their careers. This may be difficult to enforce and expensive for companies that struggle to find and retain female talent, and is perhaps easier to adopt in the public rather than private sector. At the investment bank where I spent much of my career, the female graduate intake was 50%, but they were struggling to get the number of female managing directors up to 10% (out of a total of over 1,000 globally). Nevertheless, assessing managers on their ability to maintain a fair gender balance across pay grades is a performance metric that would help.
Anna Dixon, the CEO of the Centre for Ageing Better, recommends the adoption of a system which makes all jobs flexible by default and the creation of a national scheme to support women getting back into work. Again the flexibility issue could prove very expensive for businesses, but the counterargument is that it would be a way of attracting and retaining the best talent, negating concerns some businesses have about recouping the costs of training.
It is not as if women are not trying to help themselves – a survey by Cass Business School has shown that women ask for a pay rise just as often as men do, but are 25% less likely to succeed. The issue of men being paid more than women undoubtedly goes beyond the “motherhood paradox”, where there is both an unconscious and conscious bias against women in the workplace, but encouraging women to come back to work by addressing their pay and promotion prospects is surely in the long-term interests of the UK economy.
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