Analysing the components of the gender pay gap in the u.k (year 2003) - Dissertation Example

1 Gender Pay Gap Whenever es of people are individually and collectively affected by unfair treatment under a law or policy, or when there is no law, which offers protection for this class. This type of de facto discrimination necessitates the government to take the lead in establishing legislation to eradicate the social ill. The phenomena which causes and enables the disparity of wage distribution between men and women in the work place has been of growing concern, particularly among those negatively affected for quite sometime. The reasons why the gap exist and persist, can be attributed to the social and psychological efforts of men as well as women; men have consistently throughout the ages traditionally seen women in specific roles. Statistics show that ¾ of working women are still found in five occupational groups and in the five c’s- caring, cleaning, catering, cashiering, clerical and child care. Jobs which are classified as women’s work command lower wages than men’s work even when they require similar qualification levels, leading to inequalities in pay and income. (Sex stereotyping in education and work-Investigation; free to choose-tackling gender barriers to better jobs) Up until the 18th century in the UK, when a girl left home, she did so to become someone’s wife. She left her father’s house with her mothers recipes and wisdom, which would fortify her to care for her husband and her children. Neither was she allowed nor was she expected to accept employment outside of the home. The attitude of most men was duly espoused by Queen Victoria and accepted by the Church of England, 2 concerning the subject of female employment when she said; a woman is not to compete with a man for employment, she is to do the work which God intended her to do; a wife to her husband and a mother to her children. If a woman did accept work outside of the home, she needed the consent of her husband and it was he, who would receive her wages. Women have always been viewed as the nurturing partner and anything outside of that scope was resisted by men in the Uk, until the first half of the twentieth century. During World War II, when most of the able-bodied men were called to arms, it was the women who replaced the men in the munitions factories and as mechanics on the airstrips. Even as women toiled during the war to keep the soldiers supplied with munitions and the planes fueled and mechanically ready to fly, they received less pay than their male counterparts. Consequently, when the men returned after the war, many of the women did not return to the five C’s, but remained in their non-traditional jobs, and the gap in wages persisted. “Despite nearly thirty years of equality legislation, occupational segregation remains as entrenched as ever. While women are increasingly moving into medicine and accountancy, there is no similar move into science, engineering, ICT and the skilled trades.” (Sex stereotyping) Legislative relief The blatant disregard and lack of respect for the labor of women ran rampart and was the standard order of business until the Equal Pay Act became law in 1970. The law applies to men, women and children, but its primary thrust was women. Albeit, the Act was created to close the wage gap, it provided only incremental relief and was not the panacea needed to rid a system which was riddled with inherent and long standing 3 discriminatory beliefs and practices. The act did little to prevent discrimination and had no mechanism for monitoring compliance. The act provides legal recourse for individuals who have uncovered a bona fide case of wage manipulation by an employer. For more than three decades, a claimant was required to file a grievance within two years. In July 2003 the limit was extended to six years in the UK. To further right the wrongs of past discrimination, in some cases the claimant can file for back pay to the time when the difference started.(Equal Pay Act 1970) To be sure, the Equal Pay Act 1970 was a step in the right direction even though it was a long time coming. And while it attempted to correct the wrongs of past discrimination, it did not go quite far enough. Consequently, in 1975 Parliament amended the Equal Pay Act 1970 and initiated the Sex Discrimination Act 1975. Where the Equal Pay Act 1970 dealt with pay disparities of all persons in the work place, the Sex Discrimination Act 1975, addresses the exclusive discrimination against women. This act does not address discrimination based on race. The Sex Discrimination Act of 1975 lowered the tolerance level against sex discrimination. The basic difference in the act of 1975 and the Equal Pay Act of 1970; which deals with discrimination after the fact, means it may be allowed to persist or tolerated by the affected party. Whereas, the Sex Discrimination Act of 1975; discourages the practice of discrimination from the outset. Moreover, to add strength to the 1975 Act, Parliament called for the creation of a commission; The Equal Opportunities Commission was formed in 1979 to monitor compliance and enforce the Act. 4 Narrowing the gap The Equal Opportunity Commission has since its inception, embarked upon a vigilant posture in their quest to close the wage gap between men and women. In February 2001, the Commission prepared a report on the UK performance on equal pay which presented some interesting statistics on the wage gap: The gap between men and women’s earnings has narrowed from thirty one percent to eighteen percent since the passage of the Equal Pay Act 1970. The report further pointed out that women in full time employment earn an average, eighty two per cent of the average hourly pay of male full time employees (including overtime). This represents only a two-percentage point reduction in the gender gap since 1977. (Equal Opportunity Commission Performance on Equal Pay February 2001) Clearly since the pay gap is so wide and has persisted for such a long period of time, what are the affects of the negative social impact and what variables does it impact? The EOC notes that there are a number of far-reaching consequences of the wage gap: For individual women, they include personal poverty and social exclusion, particularly for single mothers…[with] implications for child poverty. The wage gap also inhibits women’s ability to build adequate occupational pensions. It restricts the resources available to them for [an] investment in training and lifelong learning. It reduces their motivation. (Equal Opportunity Commission on Equal Pay February 2001) In addition to the gender gap, educational achievement has the biggest single impact on a woman’s likely lifetime earnings. Other significant factors are: The hours she works How many children she has 5 When she has them Whether she divorces The mid-skilled childless woman is estimated to experience a lifetime earnings gap of 241,000 pounds. The mid-skilled mother of two experiences an additional penalty (mother gap) of 140,00 pounds. The low skilled mother of two is estimated to earn around half a million pounds less than her low skilled husband. Women are likely to lose out financially as a result of divorce as they lose at least some access to their husbands income. The low-skilled never teenage mother of two children foregoes 300,000 pounds in gross earnings, compared to what she is estimated to earn had she remained childless.( New Earnings Survey 1999, Integrated information service on managing equality and diversity in small and medium sized businesses) The total labor turnover rate for female managers is greater than that for men (9.5 per cent compared to 6.5 per cent) and within this at 3.9 per cent, women are more likely to resign than their male colleagues (2.5 per cent)(More Women in Management-but they are still paid less, Compensation & Benefits Discrimination. Women and Work) Moreover, employers are caught up in a catch-22, because the gap [can encourage] a lack of competitiveness and a reduced capacity to recruit and retain good employees. It can also mean that they (employers) face laborious and expensive legal cases. And unfortunately for the government the consequences include lost revenue in tax and national insurance contributions and in time, continuing dependence amongst women on state benefits. ((EOC 2001) The EOC has a keen perception of where the problem areas exist and they have initiated studies to collect the needed data which will enable them to educate and 6 convince employers of the societal benefits to practicing equity in the work place. The majority of larger employers considered that they had arrangements in place to insure that women and men received equal pay. However, these were often limited in scope. Many employers felt it was sufficient that pay was linked to the job, responsibilities or performance, rather than to gender, and two-fifths of organizations had no plans to monitor the relative pay of men and women. Almost every employer told their staff how and when their pay would be reviewed and over three-quarters informed them all about how their rate of pay was determined. More than one in five employers did not allow their employees to share information about their pay with colleagues. One-third (36 per cent) of large organizations (those with 500 or more employees) had neither conducted an equal pay review at the time of the research, or planned to do so before the end of 2003. But the majority had no current plans to do so. (Neathey F., Dench F., and Thompson L., “Monitoring Progress Towards Pay Equity, EOC report.) The EOC research indicates there is a considerable amount of outreach which must be initiated, as some employers have invoked the loyalty oath upon employees. While some believe that their process of person to job and wages is equitable. And a majority of the large firms have no intention of conducting equal pay reviews. Those organizations which had conducted, or were conducting, equal pay reviews were generally positive about the experience. Where pay gaps were found, these were Often-quite substantial. The lowest organizational gap cited by survey respondents was five per cent, and the highest was forty per cent. Large organizations had taken more steps to achieve gender equality in pay than medium-sized ones (those with 100- 7 499) employees; similarly, the public sector had generally done more than the private services sector or manufacturing. (Astbury L., Boyland M., Morrell J., and Munns G., Gender Equality in Pay Practices (EOC research discussion series, 2001) In occupational groups, the highest average hourly pay for men is for managers and administrators, with an average of 16.78 pounds. This is one of four groups where the ratio of women’s to men’s pay is less than 73 per cent. The others are craft related and sales occupations, and personal and protective services. Women’s average pay is highest in professional occupations at 14.21 pounds an hour, while women earn 90p for every one pound earned by a man. The pay gap is least in secretarial occupations, where women earn 96p for every one-pound earned by a man. (New Earnings Survey 1999) Even though large organizations had taken more steps to rectify the gender wage gap than medium size organizations, more medium size organizations were amenable to conducting EPR’s than large organizations. As a consequence, numerically this means that a substantial number of women, are still without gender wage gap closure. The Astbury et al., study found that the factors which contributed to the wage gaps in these organizations included: “differences in starting salary; access to ad-hoc payments; unequal treatment of part-timers in respect of performance-related pay; and long pay scales with women concentrated at the bottom. Where EPR’s had progressed far enough, in the case study organizations to produce action plans to address issues of gender pay inequality, there had generally been some improvement in the relative pay position of women. (Astbury et al 2001) It is clear from the findings in the Astbury et al study, that discriminatory practices existed when it came to hiring women and awarding jobs and wages. Employer 8 justifications could be provided on the basis of experience and skill levels. Understanding the links between people and business performance is just the beginning. It is not the endpoint for organizations interested in improving their performance. Human Capital modeling (HCM) is not only about proving the value people add to the business. It goes further to allow organizations to: Quantify the relationship between people attitudes, behaviour and performance Identify areas of focus to improve employee performance Quantify the benefit and trade-offs in people decisions to guide investment decisions; and Increase understanding interrelationships which allow for better performance management of particular areas. (Hewitt Quarterly Asia Pacific/volume 3-Issue 3 Predictive Models for Assessing Human Capital) A Human Capital earnings function of the kind developed by Mincer (1974) and widely used since, is the appropriate vehicle for investigating the wage gap issue. Mincers earnings function expresses the natural log of annual earnings (in E) as a linear function of a vector of K independent variables (X k) (to be expressed as coefficient): (1) in E sigma k Bk Xk –e, where Bk represent k coefficients to be estimated, and e is a normally distributed error term. (Woodbury Stephen A., Culture, Human Capital and the Earnings of West Indian Blacks, Upjohn Institute Staff Working Paper 93-20, September 1993) The specification of earnings function used here is similar to Cheswick’s (1978) and includes the following independent variables: years of schooling completed, labour market experience (age-years of schooling) and its square, the 9 natural log of weeks worked during the year, the natural log of average hours worked during a week, three variables capturing the workers location (a dummy variable equal to 1 if the worker lived outside of the metropolitan area, a second equal to 1 if the worker lived in the south, and a third equal to 1 if the worker lived in the New York metropolitan area), and variables capturing a workers marital status and health (a dummy variable equal to 1 if a worker was not married, and another equal to 1 if a worker reported a disability that affected work)(Woodbury 93-20, 1993) Most organizations use some measure of human capital-head count, turnover, productivity-or some assessment of the value produced. These measures vary in their complexity, in the amount of information they provide, and the value they contribute to the company’s decision making process. Clearly there is no single measurement formula that works for all organizations that have different goals strategies and people practices. (Hewitt Quarterly) Is the single equation method a viable measure for equating the wage gap? The single equation approach has been criticized by a number of researchers, however, for imposing the restriction that each variable in X must have the same effect on wages for both male and female. For example, if one of the independent variables in the model is years of experience, then this restriction means that an additional year in the labour force must have the same average impact on salary for both men and women. If those restrictions are inappropriate, then the estimated coefficient for the gender variable will lead to an incorrect measure of the unexplained wage gap. As an alternative, analysts such as Oaxaca (1973), Blinder (1973), Reimers (1983), Cotton (1988), Neumark (1988), and Oaxaca and Ranson (1994) have proposed using multiple-equation methods for 10 measuring the unexplained wage gap. Rather than adding a gender dummy variable to a single wage equation, the multiple equation methods involve estimating the wage equation separately for males and females. (Toutkoushian, Robert K., An Analysis of Gender Inequities in Salary and Rank for faculty at the University of Cincinnati, academic year 1999-00, March 27, 2000) The most commonly-used alternative to the single equation method is based on the work of Oaxaca (1973), Howard, Snyder and McLaughlin (1992), refer to a variation of this procedure as the “best-white-male-model” because the characteristics of the white males are used to develop the base-line regression equation. If differences in a sample mean wages between groups of individuals (men and women in this case) cannot be explained by differences in characteristics of individuals in each group, they must be attributed to discrimination (i.e. to group membership). Put differently, “discrimination against females can be said to exist whenever the relative wage of males exceeds the relative wage that would have prevailed if males and females were paid according to the same criteria. (Oaxaca, 1973: 694) Several methods have been proposed for decomposing the raw wage gap in its two basic components: wage differences due to different observable characteristics and discrimination. All such methods start by estimating Mincerian-type wage equations for the two groups (male and female workers) augmented to include characteristics of the employer and the workplace. (Santos, Luis D., Varejao, Jose, Gender Discrimination in Tourism Labour Market-The Portuguese Contributed Paper) lnwi= Xi ^B + vi I=m, f (1) where in Wi is the hourly wage (in natural log form), Xi is a set of regressions that 11 controls for the relevant attributes, B^; is the vector of estimated coefficients and vi is the residual term. Subscript I indicates group membership (m if males, f if females). The average wage gap (in logarithms) between males and females is then given by ___ ____ __ ^ __ __ lnwm – lnwf = Xm Bm - Xf Bf (2) Which cab be written as: ____ ____ __ __ __ ^ * __ * ^ lnwm - lnwf = (Xm – Xf) B* + Xm Bm – B) + Xf B – Bf) (3) When B* denotes the estimated non-discriminating wage structure. Neuman’s decomposition of the wage gap (Neuman (1988) obtains B* from the estimation of the equation (1) with a pooled sample of all male and female workers. The other most frequently used alternative method obtain B* by estimating equations (1) for female or male workers only, (Oaxaca, 1973, Blinder 1973) or as a weighted average of ^Bm and ^Bf with weights equal to each groups share in total employment. (Cotton, 1988) Of all the alternative methodologies this is usually considered the one that best captures the wage structure that would prevail if employees were gender- blind. (Oaxaca and Ransom, 1994) The significant level of the wage gap between men and women in many member states has been identified as a disincentive for women to take up work or to remain at work… “Women in Britain get promoted more quickly than men, but are still paid less than their male colleagues despite enjoying faster pay growth”. (32nd Annual National Management Salary Survey). In a survey of 20, 989 individuals employed in over 200 organizations, it shows that the 12 average female leader is 37 years old, compared to an average of 41 for men. But at 36,712 pounds, these female managers are earning 2,674 pounds less than their male counterparts. At director level where the average female is 44 years old (47 for men) the pay is even more pronounced at 22,144 pounds. The survey by the Chartered Management Institute and Remuneration Economics, shows an average earnings increase of 5.3 percent for women managers. This means that the average female head of departments is earning 76,402 pounds-still a 5 percent shortfall on the male equivalent of 80,459 pounds. However, with male managers only awarded an average increase of 4.9 per cent. These figures represent nine successive years that female earnings growth has out performed men. This years survey also shows that women’s salaries are increasingly being supplemented by bonuses. At senior executive level for example, female managers are receiving larger bonuses than male managers for the first time since the survey began in 1974 (2,302 pounds compared with 2,039 pounds). However, the bonuses paid to women represent a lower proportion of the overall remuneration package-worth an average of 10.4 per cent of their salary, compared to 13.7 percent for men. Even in sectors and functions with a high per cent age of female managers, there is a distinct gap in remuneration. (More Women in Management-but they are still paid less, Compensation and Benefits Discrimination. Women and Work) The member states where appropriate with social partners, are thus called upon to adopt a multi-faceted strategy to achieve gender pay equality in both the public and private sectors and consider setting of targets to tackle the pay gap, such a strategy could include inter alia review of job classification and pay schemes to eliminate gender bias, improving statistical and monitoring systems, and awareness- raising and transparency as regards to pay gaps. (European Union Employment 13 Guidelines 2002, EU0109236F) A Eurostat study conducted in 2001 indicated that the pay gaps in the Uk are narrowing, from 76.6 per cent (1990) to 80.6 per cent (2000) (figures refer to hourly pay) narrowing. (Clarke, Steve, Eurostat, statistics in focus, national data-EIRO Eurostat data- earnings of men and women in the EU: the gap is narrowing but slowly.) Albeit the study points out that the numbers reflect that the gaps are narrowing, it points to the fact that pay differences may also be seen as a consequence of men’s and women’s jobs being subject to different evaluations, as well as differences that can be explained only by direct discrimination. The study thus emphasizes that improving statistics is an important strategy to reduce this unjustified pay gap. This means that improving both the quality and the coverage of statistics by: Making sure that statistics cover all branches of industry as well as part time employees and marginal groups that might be excluded from pay statistics; collecting information on overtime pay and on fringe benefits, bonuses etc., since such extras might add to the wage gap if they are more common among male employees than among female employees. (Clarke, Steve Eurostat statistics in force 2001) After four years of promotion, just one-third of large organizations have completed an equal pay review (January 27, 2006), according to EOC research. The EOC equal pay review research has found no significant increase in the number of large organizations completing a pay review over the last 12 months. At the current rate, the government will miss its own target of having 45 per cent of large organizations completing pay reviews by 2008. The least activity is in the private sector where the gender pay gap is already nearly 14 ten per centage points higher than in the public sector. While sixty-one per cent of large public sector organizations have completed an equal pay review or have their first EPR in progress, just thirty nine per cent have done so in the private sector. (Press release: voluntary approach to equal pay reviews is failing-a new approach is needed. Equal Pay Review survey 2005 by Adams L., Carter K., Schafer S., of IFF Research) Key findings of IFF research for EOC are: In the 2005 survey, 34 percent of the large organizations (500 + employees) had completed an epr. This compared with thirty-three per cent in the 2004 survey; there is no significant statistical change. Only eleven per cent of organizations reported they had done, or were currently doing, a pay review that checked for both equal pay and work of equal value, this check is one of the foundations of an equal pay review-as recommended in the Code of Practice on Equal Pay. (Adams L. et al) Works Cited Adams L., Carter K., Schafer, S., IFF research, Equal Pay Review Survey 2005, Press release; Voluntary approach to equal pay reviews are failing-a new approach is needed On line; found at www.eoc.oeg.uk Astbury L., Boyland M., Morrell J., Munns G., Gender equity in pay practices (EOC research discussion series, 2001) On line: found at; www.eoc.org.uk/ac.pdf Clarke Sreve, Eurostat, Statistics in focus 5/2001 theme 3, national data-Eiro Eurostat data-Earnings of men and women in the EU: The gap is narrowing but slowly On line; found at; www.eiro.eurofound.ie/2002/01/study/tn0201101S Dench S., Neathey F., Thompson L., Monitoring progress towards pay equality, report for EOC; On line; found at; www.eoc.org.uk/default.aspx Equal Pay Act 1970, On line; found at; www.pfc.org.uk/legal/sda.htm EU Employment Guidelines 2002-EUO 109236F, On line; found at; Europa.eu.int/comm./employment_strategy/guidelines Glass ceiling cracks as women gain pay parity November 14, 2003. On line; found at; www.vnunet.com/vnunet/news/212587/women-smash-glass-ceiling Hewitt Quarterly Asia Pacific/Volume 3 Issue 3 Predictive Models For Assessing Human Capital New Earnings Survey 1999, Integrated Information Service on Managing Equality and Diversity in Small and Medium-Sized Businesses More women in management-but they are still paid less-compensation and benefits discrimination. Women and work. On line; found at; www.management-issues.com/display_page asp Santos Luis, D. Varejao Jose, Gender Discrimination in Tourism Labour Market – The Portguese Contributed Paper On line: found at www.world-tourism.org/TSAconf2005/pdf/doc_5CP_Delfim.pdf Sex discrimination Act 1975 On line found at:www.pfc.org.uk/legal/sda.htm Sex stereotyping in education and work-investigation; free to choose-tackling gender barriers to better jobs On line; found at; www.eoc.org.uk/default.aspx Thirty second annual national management survey ed. IFF research Toutkoushian, Robert K., An Analysis of Gender Inequities in Salary and Rank for faculty at the University of Cincinnatiu, Academic Year 1999-2000, March 27. 2000 On line: found at www.aaupuc.org/toutkoushian.html UK Equal Opportunity Commission-Performance on Equal Pay On line; found at www.ets.gov.uk/equalpayreport.pdf Woodbury Stephen A., Culture, Human Capital and the Earnings of West Indian Blacks, Upjohn Institute Staff Working Paper 93-20, September 1993 Read More