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The Gender Pay Gap: Rethinking Human Capital

By MARY GREGORY, 26/02/2015

Credits to DG EMPL
Credits to DG EMPL

It is now 40 years since the UK’s Equal Pay Act came fully into force, yet the gender pay gap remains ubiquitous (Goodley, 2014). More perplexingly, the same period has seen a dramatic rise in women’s educational attainment (Barnes, 2011, p.17). Girls have been outperforming boys at GCSE (Arnett, 2014) and A-level (Paton, 2014) for a number of years and are now the majority among university students (Grove, 2015). Human capital theory would predict a reverse gender pay gap, with women’s earnings ahead of men’s. So what is going wrong, either in the world or in economists’ theories?

The limitations of the Equal Pay Act were quickly evident. In making illegal separate pay rates for men and women for the same job it tackled only the rawest form of pay discrimination. Much more typically, and more sharply then than now, men and women do different jobs, in different occupations and industries; strict comparators are hard to establish and easy to avoid. As we have also discovered, the obvious modification from ‘equal pay for equal work’ to ‘equal pay for work of equal value’ can only be made operational, if at all, on a case by case basis. Is the work of a (female) cook in a shipyard canteen of equal value to the work of a (male) painter, joiner or insulation engineer, as addressed in a landmark ruling of the 1980s?

It is now 40 years since the UK’s Equal Pay Act came fully into force, yet the gender pay gap remains ubiquitous

A more holistic approach is required if the sources and persistence of the gender pay gap are to be understood. Some major clues are obvious. The life-cycle earnings trajectories of men and women are strikingly different. Women’s earnings peak around age 30; men’s continue to rise until their mid-40s (Gregory, 2009, p.291). As a consequence women’s pay disadvantage, relatively minor through their 20s, then increases sharply and never recovers. The early 30s are often the period when men are identified as high-flyers, earmarked for promotions. It is also the period when childcare responsibilities are most demanding, and many women, wishing to maintain labour market involvement, switch to part-time work (Paull, 2008).

Around 40 percent of working women now work part-time and around two-thirds do so at some stage in their adult careers (Equality and Human Rights Commission, 2014). But part-time jobs are typically of poor quality, in lower-level occupations, with low pay and little career progression. For many women the switch to part-time work involves occupational downgrading. Sara Connolly and I found that one-quarter of women in high-skill occupations switching to part-time work drop to medium or even low skill jobs (Connolly and Gregory, 2008). Among women in the higher professions (medical practitioners, lawyers) 20 percent downgrade. For associate professionals, e.g. in paramedical or welfare services, 22 percent downgrade, the majority to clerical jobs, but a third into the lowest-skill occupations such as sales assistants. Managers are notably badly affected. 29 percent of corporate managers downgrade, the majority moving to clerical positions. The most vulnerable group, almost half downgrading, are managers of smaller establishments (retail, hairdressing, catering); typically they remain in their line of business but give up their managerial or supervisory responsibilities.

Human capital notwithstanding, occupational downgrading, particularly to part-time status, brings a substantial and lasting pay penalty. Our simulations indicate that a woman who has downgraded, remaining in the lower-level occupation on return to full-time work, incurs an on-going earnings penalty of 40 percent  (Connolly and Gregory, 2009). Even the most favourable scenario, back to full-time work in the higher-level occupation, brings an improved pay trajectory, but still 20 percent lower than from continuous full-time employment. With occupational downgrading the pay penalty to a spell in part-time work is severe and permanent.

Not all mothers choose to move to part-time work; one-third remain in full-time employment throughout their working lives (Equality and Human Rights Commission, 2014). Here the loss of ground in occupational standing and pay takes the rather different form of fewer and less rapid promotions than men, and lower pay gradings and bonuses. Quantile regression techniques have brought to the fore that the gender pay gap is most pronounced at the top end of the earnings distribution – the ‘glass ceiling’ (Arulampalam, Booth and Bryan, 2007). The processes underlying the glass ceiling, decisions within the firm, are beginning to be addressed through personnel records from within the firm. These, as well as much more anecdotal evidence, highlight gender differences in job assignment, including promotions. It remains an open question how far this is a ‘supply’ problem: “women don’t ask” for better pay offers or job grades, or how far employers still have lower expectations of women’s ambitions and competitiveness.

Of course, all is not gloom and doom. With educational attainment as the springboard and the continuing trend of ‘female-biased technological change’ towards services, ‘soft’ skills and the marketization of household work, women will continue to press forward, particularly into managerial and professional positions (Gregory, 2011). Even part-time work is beginning to be redefined by women becoming entrepreneurs, setting up their own businesses. But gender inequality in the labour market seems set to persist.

Two messages emerge from this for economists. Firstly, human capital, as a theory of pay determination, is deficient. Occupational downgrading breaks the link between pay and years of schooling or level of educational attainment. When women face the constraint that part-time work is too often available only in occupations for which they are overqualified their human capital is under-rewarded as well as underutilized.

More fundamentally, the economic and societal model giving rise to this ‘hidden brain drain’ of women’s human capital in part-time work is not only economically inefficient but deeply flawed. It expects women to participate in the labour market as if on equal terms with men, but at the same time to make much the biggest contribution to childcare. Appropriately, the thrust of social policies towards gender equality in most countries now centres on family support, particularly through the extension of parental leave. Parental leave, however, is still overwhelmingly taken by mothers (Gregory, 2011); it is they who have to wrestle with work-family reconciliation. Until this imbalance is rectified with childcare recognized as a collective responsibility Equal Pay legislation, mentoring schemes, role models, the promotion of networks, maybe even job quotas, will be useful but only as palliatives.

MARY GREGORY

Mary has recently retired as Fellow and Tutor in Economics at St Hilda’s College and the Department of Economics, Oxford University. She has previously held positions at Glasgow University and the National Institute for Economic and Social Research, London, and has been a visiting academic at a number of institutions including University of California at Berkeley. She is a founder member of the European Low Wage Employment Network LoWER, a past editor of Oxford Economic Papers and Council member of the Royal Economic Society.

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