One of the Major Contributors to Wage Gaps in Reducing the Gender Pay Gap - Essay Example

 One of the most noted features of the labor markets all over the world is the Gender Pay Gap. It is a form of income equality that essentially refers to the differences income across male and female genders. Whether it is due to gender specific characters, differences in choices regarding lifestyle or discriminatory practices, that such differences are observed all over the world , is a debated issue and particularly so as it seemingly violates the notions of gender equality. The present essay shall attempt to explain what the gender pay gap is and how it persists today particularly by referring to empirical observations made from all over the world. We shall briefly discuss the methodology regarding the measurement of the gender pay gap. Then the essay shall move onto evaluating the possible causes for the existence of the gender pay gap. Finally, the essay shall roundup the discussion by making certain observations regarding how the gap can be reduced. That on average females earn lower than men in terms of hourly, weekly, monthly or even yearly wage rates is a phenomenon observed all over the world. The magnitude of the differences however is variable. There has been a significant reduction in the gap since the 1950s in most industrialized nations and women seem to be gradually catching up with men in terms of earnings per unit of work (measured as hours or days or weeks or months or years of work). Published data reflects that by the late 1980s, in countries of Scandinavia as well as in Australia, France and New Zealand the female to male hourly pay ratio had moved up to 80-90 percent while in other nations in Western Europe as well as in the United States these ratios were in the range of 65-75 percent. Notably, United States belonged to the group of countries with the highest differentials. Only Japan, which had a very low ratio of 50 percent, exhibited a larger gap consistently (Blau & Kahn, 1992). In case of USA, the average female to male earnings (annual) ratio has increased to 77.8 percent (for full time workers) in 2007. To recognize the magnitude of the increase it is pertinent to note that this ratio stood at 60.2 percent in 1980, at 71.6 percent in 1990 and at 73.7 percent in the year 2000. Apart from the obvious increment in the ratio, another notable aspect is that the rate of growth in the ratio has been slowing down over the years (IWPR, 2008). According to NES data (2000), the average wages (hourly) of females in full time employment in Great Britain stands at 82 percent of male full time workers. This ratio stood at 71 percent in 1975, and notably the year coincides with the introduction of the Equal Pay Act (Blau & Kahn, 1992). According to Eurostat SES (2002), the Gender Pay Gap for 2002, which is in essence the difference between the average hourly female and male earnings expressed as a percentage of male earnings, varies within a range of 30 percent to 11 percent approximately in the EU-25. The average for the entire region lies at 25 percent roughly. The highest gap of 30 percent is observed in the UK and the lowest is found in Slovenia. Nations like Austria, Ireland, Cyprus and Slovakia exhibit higher value gaps while Sweden, France, Belgium and Hungary exhibit gaps that tend towards the lower bound of the range. The trend seems to be that the older members of the EU have higher Gender Pay Gaps while the newer members have lower gaps though the differences are not very high. It should be noted that the Gender Pay Gap of most of these nations have exhibited declining trends over time (European Commission, 2006). There is a lack of detailed surveys on the Gender Pay Gap in developing nations. According to Jamali, Sidani & Kobeissi (2008) “[t]he gender pay gap is only salient in the higher education sector, although male and female employees in all three sectors (Health, Banking and Higher Education) perceive that there is no gender pay gap and discrimination is considered to be a salient issue only in the educational sector. Although not entirely expected, the findings regarding those wage gap perceptions are explained in relation to the adoption of a grading compensation scheme which can go a long way according to the present research in alleviating feelings of inequity as well as prevailing cultural expectations regarding gender earnings differentials in a relatively conservative society.” A very recent report of the ITUC (2009) does imply that the actual gender earnings inequality is much higher than perceived till date. The estimated global average for the gender pay gap was found to be 22%, instead of 16.5% as previously reported by ITUC based on official government statistics. Therefore, what emerges is that the phenomenon of a significant difference in average earnings for males and females with females earning considerably lower than males is globally true. The following section shall comment on the how the gap is computed. The Gender Pay Gap as is evident from its name is the difference between the average earnings of males and females. Alternatively, it is the average of the difference between the compensation received for providing labor by males and females. It is expressed as the ratio of the difference between average male earnings and average female earnings to average male earnings. It should be noted that though the ratio of female earnings to male earnings as a percentage reflects the gender pay gap, it is not the gender pay gap. The gender pay gap is expressed the ratio of the gap of the female-male earnings to the male earnings. The major source of differences that appear in information regarding the gender pay gap is the choice of the time period on the basis of which average wage is computed. That is to say, the average wage can be expressed on an hourly, weekly, monthly or even yearly basis. Further, the estimates can vary depending upon the types of employment included. For instance exclusion of part time employment varies the results significantly. Similarly, the results vary according to the inclusion or exclusion of self-employment. It is often argued that self employment should definitely be included to make the results realistic and more robust but unfortunately the necessary reliable data is often unavailable or includes breaks that render its usage difficult (Anderson et al. 2001). Another aspect that should be mentioned regarding the methodology of measuring the Gender Pay Gap is what it actually measures. The estimate, by itself neither captures gender based discrimination in employment, nor does it reflect any form of segregation in the market for labor. It is a simple statistic that reflects the difference in employment patterns or participation in the labor market for males and females. Thus, it is simply an indicator of the situation as it exists and is not at all able to reflect any causes behind the observed scenario (Blau & Kahn, 2003). However, by observing the movements in the estimates of the Gender Pay Gap in tandem with other socio-economic indicators that reflect the situation regarding issues like participation, segregation, discrimination etc, does create the scope of rationalizing the observations to the extent that it allows informed comments on the possible causes. There are certain adjustments however, that can be made to reflect the strength of certain causes of the phenomenon, though total isolation is not possible. For instance, by classifying the population by occupation, the average wages can be compared in similar occupations. Through this adjustment, the exact differences in earnings in the same jobs can be identified. This will reveal how much employers discriminate between male and female workers more much more significantly compared to if the adjustment is not made. However, the adjustment will not be able to totally isolate only the effect of discrimination. Similarly, if the Gender Pay Gap is computed utilizing only hourly wage rates the distorting effects of part time employment can be abolished. In fact, a study by Bertrand and Hallock (2001) revealed that when the comparison was between the highest paid corporate executives in a large number of US firms for the period 1992-97, female earnings where about 45 percent lower than male earnings and it was found that this was mostly due to the fact that firms managed by Women were smaller and further, Women had lower possibilities of being the CEO or the company chair or in the post of president of the board. As the authors note, this does in no way rule out discrimination through segregation or inequalities in promotion. However, the study did find a significant surge in the number of female participants in top executive positions and further they observed a very strong relative rise in female compensations as well. The major causes of the observed Gender Pay Gap phenomenon have been identified since long and the succeeding literature has been burgeoning essentially in pursuit of identifying the relative strength of a particular cause compared to another in occupationally, regionally or socio-economically varying populations (Anderson et al. 2001). This section will briefly summarize the causes that are identified as contributors to the generation of the gender pay gap. The first and foremost reason behind the phenomenon has been identified as the differences in human capital. By differences in human capital, in essence the focus is on the different educational levels or difference in work related experience that are observed between female and male labor market participants. Differences in educational levels between Women and Men in the workforce have been empirically observed and this has been identified as a significant cause for the pay gaps observed. Further, Female workers exhibited discontinuity in employment over time, a fact explained primarily by necessity to care for children and other dependent family members. This led to a differential in work experience which significantly contributed to the wage gap. This finding is further supported by the fact that observed improvements in female human capital considerably reduced earning differentials (Blackaby et al 2001). It has been observed that the participation in part time employment is more common for females compared to males. Further, as part time employment is focused majorly in low-paying jobs this creates a large differential between hourly wages between males and females as males working more in full time jobs are in jobs that pay better on average. Also, if part time and full time employment is clubbed together, evidently, annual earning differentials will be high (Albanesi & Olivetti, 2007). Another cause that has been identified is that males are more open to traveling for work purposes compared to females (Anderson et al. 2001). This relative disinclination to commute has two wage gap propounding effects. First, it leads to a lower number of employment options for females thus increasing competition and thereby reducing the wages. Secondly, due to the fact that a large number of females belonging to same regions will due to restricted traveling propensities compete for the same jobs. This shall similarly lead to reduced wages. Segregation in terms of occupation is also largely due for the wage gap phenomenon. It has been observed that approximately 60 percent females are employed in 10 percent of all occupations (Anderson et al. 2001). Further, the jobs that predominantly employ females pay relatively lesser wages. Lower percentages of Women are employed in the higher paying work within same occupations. The significance of segregation has further been confirmed by findings that in spite of classifying the occupations individually exhibit lower wages for occupations where female employment is concentrated (Albanesi & Olivetti, 2007). Therefore what emerges is that employer firms can individually contribute to only a small amount of gender wage gap reduction. This is primarily due to the fact that the most significant causes are exogenous to the employers. Greater results possibly can be achieved by ensuring institutional regulations and policy changes that prevent discrimination. Since educational differentials are one of the major contributors to wage gaps, motivating females to undertake higher education can be significantly beneficial. Employers can also reduce differentials by ensuring that the human capital differentials are driven down through effective female employee trainings and workshops. This should be done so that the reduction of the differential enhances productivity so that the increase in the wage bill may be compensated effectively to retain profits. Thus policy changes that provide incentives for firms to undertake such initiatives may be significantly helpful in reducing the gender pay gap. References: Albanesi, S. & Claudia Olivetti (2007) Home Production, Market Production and the Gender Wage Gap: Incentives and Expectations, Columbia University Department of Economics Discussion Paper Series, Discussion Paper No.: 0607-10, NBER Working Paper No. 12212 Anderson T, J Forth, H Metcalf (2001) The Gender Pay Gap, Women and Equality Unit, Cabinet Office. London Blackaby D, K Clark, D Leslie, P Murphy, (1997) The distribution of male and female earnings 1973-1991: evidence for Britain, Oxford Economic Papers, 49, 256-72. Blackaby D, N Moore, P Murphy, N O’Leary, (2001), The Gender Pay Gap in Wales, Equal Opportunities Commission. Blau, Francine D. and Kahn, Lawrence M.,The Gender Earnings Gap: Some International Evidence(December 1992). NBER Working Paper No. W4224. Available at SSRN: http://ssrn.com/abstract=238455 Plantenga, J & C Remery (2006). The gender pay gap: Origins and policy responses – A comparative review of 30 European countries, European Commission, Directorate General for Employment, Social Affairs and Equal Opportunities http://www.bmfsfj.de/RedaktionBMFSFJ/Abteilung4/Pdf-Anlagen/nl-dezember-06-eu-expert-group-gender-pay,property=pdf,bereich=,rwb=true.pdf ITUC (2009) Gender (in)Equality in the labour market: an overview of global trends and developments, ITUC, International Trade Union Confederation,March 2009 http://www.ituc-csi.org/spip.php?article2799 IWPR (2008) The Gender Pay Gap: 2007, IWPR fact sheet, IWPR No. C350. www.iwpr.org/pdf/C350.pdf Blau, Francine D. and Kahn, Lawrence M (2003) Understanding international differences in the gender pay gap, Journal of Labor Economics, 200 http://inequality.cornell.edu/publications/working_papers/Blau1.pdf Marianne Bertrand Kevin F.Hallock (2008). The Gender Gap in Top Corporate Jobs, Faculty Publications-Human Resource Studies, Cornell University ILR School http://digitalcommons.ilr.cornell.edu/hrpubs/14 Read More