The UK's Gender Pay Gap Is Less Than 1% When Job Differences Are Considered

A closer examination of the subject suggests we don't actually have one.

Much angst is expended on the idea that we’ve got a gender pay gap. A closer examination of the subject suggests that we’ve not actually got one. Indeed, if there is one, it might well be in favor of women. This, of course, depends on exactly what it is we’re calling a pay gap, so let’s explain our definitions here.

What the "Pay Gap" Actually Means

People who work different jobs, work different hours, or stick with the same career path for longer are naturally going to be paid different amounts.

Women get paid less than men. In general, that is, across the economy as a whole. This is what is known as the raw, unadjusted, or gross gap. But we’re in a market economy. People who work different jobs, work different hours, or stick with the same career path for longer are naturally going to be paid different amounts. That there is some variation is to be expected.

In fact, once we correct for all of these factors, we find that for people doing the same job in the same organization, the gender pay gap falls to about 0.8 percent, the sort of figure we might ascribe more to a rounding error rather than anything more sinister.

It is also true that fewer women reach the top of the greasy pole. That might be because of discrimination, career breaks, or just not thinking the game is worth the candle. We could say that female-dominated firms pay less because of that discrimination or that women cluster in the firms that pay less. The reason for these differences is still a matter of debate between those who insist, as I do, that this is the way market economies work and those who insist it comes down to the oppression of the patriarchy.

The Compensation Gap—or Lack Thereof

But in fact, if we consider a fuller picture, there may well be no “pay gap” at all. Or rather, no compensation gap—and it is the word “compensation” that is the key here for the same reason it is the total cost of employing someone, rather than just their salary, that influences a company’s hiring decisions.

No one hires based solely on what will appear in their employee’s wage packet. They look instead at the total cost, including taxes on employment (such as employers’ national insurance) and other costs— sick pay, maternity pay, training costs, and, crucially, pensions. Pensions are particularly important because, as we all ought to know, vast swathes of British industry are going bust thanks to their pensions deficits.

Once we include all of these things—and I’ve not seen any proper calculations of a gender compensation gap—it’s moot as to whether there actually is a gap at all.

Once we include all of these things—and I’ve not seen any proper calculations of a gender compensation gap—it’s moot as to whether there actually is a gap at all. In terms of direct costs to firms, maternity pay isn’t all that large, given that 90 percent of the cost of statutory pay is picked up by the state. But such things as flexible hours, the ability to take time off on short notice (say, for a sick kid) and job security—that is, the difficulty of getting fired—also add to employers’ costs. These might be things available to all employees, but given that women take on more parenting responsibilities than men, they are more likely to take advantage of these options.

Employers, especially smaller firms on tight budgets, are naturally hesitant to offer such perks because of the costs to them. And pensions are, of course, the biggest liability when taking on a new member of staff. As the TUC itself rightly argues, a pension is simply deferred pay.

The key thing to note is that women, even given equal retirement ages, tend to receive their pensions for about three years longer than men. Where there is still a gap in retirement ages based on gender, this gap expands even wider. Further, women are also disproportionately represented in the public sector, the one remaining place where the very much more valuable defined benefit pension still exists. There are reasonable estimates that such pensions add as much as 30 percent to public sector pay. Or, using our above definitions, to public sector compensation.

It is possible we'd that find women are getting a different compensation mix, on average, than men: greater job security, greater flexibility, and possibly better pensions, all at the cost of some cash in their monthly pay packets.

If we add all of these parts of compensation together, then the gender gap might start to look rather different. It is possible we'd find that women are getting a different compensation mix, on average, than men: greater job security, greater flexibility, and possibly better pensions, all at the cost of some cash in their monthly pay packets. That would go part of the way to explaining the existence of a pay gap, even if there is no deliberate discrimination.

Exactly what the difference between compensation for men and women is unclear. But it seems uncontroversial to note that pay is not the only part of compensation and that women do, on average, receive lower salaries, but some of the shortfall is likely to be made up for by greater compensation in other forms.

What we’d really like to know though is whether this is the whole story. And at least as far as I know, we don’t yet know. There are still no population-wide measures of compensation, as opposed to pay, listed by gender. If there were, they would certainly make interesting reading.

This article was reprinted with permission from CapX.

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