DEVELOPING SECTORAL STRATEGIES TO ADDRESS GENDER PAY GAPS. A Comparative Analysis of Sectoral Wage Differentials in the European Union

Transcription

1 Department of Justice, Equality & Law Reform DEVELOPING SECTORAL STRATEGIES TO ADDRESS GENDER PAY GAPS A Comparative Analysis of Sectoral Wage Differentials in the European Union A Final Report February 2003

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3 Department of Justice, Equality & Law Reform DEVELOPING SECTORAL STRATEGIES TO ADDRESS GENDER PAY GAPS A Comparative Analysis of Sectoral Wage Differentials in the European Union A Final Report by Planning, Economic & Development Consultants Ormonde House 12/13 Lower Leeson Street Dublin 2 Ireland Tel: Fax: Also at Belfast, Birmingham, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester, Newcastle and Reading February 2003

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5 CONTENTS SECTION PAGE 1. INTRODUCTION THE THEORETICAL FRAMEWORK QUANTIFYING AND EXPLAINING THE GENDER PAY GAP INSTITUTIONAL FACTORS IMPACTING ON THE GENDER PAY GAP NATIONAL STUDIES CONTEXT AND METHODOLOGY COMPARATIVE REVIEW KEY FINDINGS AND CONCLUSIONS...45 APPENDICES A Bibliography B Steering Group Members and National Research Teams Quality Assurance Record Checked By Date Authorised by Date Ref: P/8115/01

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7 1 1. INTRODUCTION 1.1 DTZ Pieda Consulting was commissioned by the Department of Justice, Equality & Law Reform in January 2002 to undertake a comparative analysis of the gender pay gap based on research carried out in Finland, Ireland, Northern Ireland and Sweden. This report summarises the findings of these national research projects and highlights the common themes that emerge from them. CONTEXT FOR THE STUDY 1.2 In recent years the promotion of gender equality, particularly in the areas of economic and social life, has come to the forefront of the public policy agenda in the European Union. As more and more women enter the labour market in all countries across the EU, ensuring that men and women receive equal treatment in the workplace becomes all the more important. An important part of this is ensuring that men and women are treated equally regarding the rewards they receive for their work. 1.3 A strong legislative framework already exists in the European Union to guarantee equal pay. Article 141 of the Amsterdam Treaty (replacing Article 119 of the Treaty of Rome) states that each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied. Despite this, however, women on average earn less than men in all Member States across the EU. Women s earnings as a percentage of men s or the gender pay gap in the EU stood at around 83% in The position of women relative to men in the labour market has improved greatly over the last few decades and this has included a narrowing of the gender pay gap. While employment equality legislation has played an important part in this, economic and social factors have also had an effect. There are now an increasing number of women entering what were traditionally viewed as male-dominated occupations and an increasing proportion of women entering senior management positions. In addition, there has been an increase in the participation of women in third level education, which has increased the overall average level of education of the female workforce. 1.5 Despite this, however, there still remains a difference between the earnings of women and men in the labour market in all industrialised economies. A substantial body of literature exists on this issue, particularly on explaining the causes of the gender pay gap. Part of the gap is usually attributed to differences in the average characteristics of male and females in the labour, such as educational attainment, work experience, 1. Throughout this report the convention used for measuring the gender pay gap is the average earnings of females as a percentage of the average earnings of males.

8 2 periods of absence from the labour market, occupation and working hours. The part of the gap that can t be explained by individual characteristics is usually attributed to other factors, including direct discrimination against women. 1.6 While a significant body of research exists on explaining the causes of the gender pay gap at the economy-wide level, relatively little analysis exists on explaining the gender pay gap within specific sectors of the economy. The aim of this study is to explore the gender pay gap in the IT, retail and food sectors and to identify common strategies that will contribute to reducing the gap in these sectors. 1.7 A common theme throughout the existing literature on explaining the differences between the earnings of men and women is that there is significant variation in the extent of the gap across sectors. In particular, sectors that have a high proportion of female employees also tend to be characterised as low wage sectors. The approach adopted in this study provides an opportunity to look at a number of key sectors within the economy and to what extent different employee characteristics and sectoral-specific conditions impact on the gender pay gap. 1.8 The sectors that have been selected for the study all exhibit quite different characteristics, providing an interesting point of comparison. For example, the high technology, skills intensive and fast growing IT sector that on average employs a higher proportion of men is quite different to the more traditional food and retail sectors of the economy. In addition, the food sector also tends to have a larger proportion of male employees, while female employees have always largely dominated the retail sector. STUDY APPROACH 1.9 The study has been part-funded under the Programme relating to the Community Support Framework Strategy on Gender Equality ( ) 2. There are four partner countries in the study: Finland, Ireland, Northern Ireland and Sweden. The Department of Justice, Equality and Law Reform in Ireland has acted as the coordinating organisation. The other partner organisations include the Ministry of Social Affairs and Health in Finland, the Equality Commission in Northern Ireland and the Ministry of Industry, Employment and Communications in Sweden. A Steering Group involving the partner organisations was set-up to oversee the research. 2. The European Commission chose equal pay as the priority topic for transnational projects to be funded during the first year of the new Programme relating to the Community Support Framework Strategy on Gender Equality ( ). The Programme forms part of the Framework Strategy that combines specific measures designed to foster gender equality with the mainstreaming approach to ensure that all Community policies take gender into account.

9 Research on the gender pay gap at the sectoral level was carried out in each partner country by the following organisations: Finland: Ireland: Northern Ireland: Sweden: The Research Institute of the Finnish Economy, the Labour Institute for Economic Research and Statistics Finland Indecon International Economic Consultants Economic Research and Evaluation Statistics Sweden 1.11 The Irish study focussed on the gender pay gap in the three sectors of IT, retail and food, while Finland and Northern Ireland looked at the IT and retail sectors and Sweden conducted research on the food sector The completion of the study will be marked by a Study Conference to be held at Dublin Castle in Ireland on 13th and 14th February 2003 to be attended by government officials and representatives of the social partners in the project participant countries and from across the EU. The conference will present the findings of the national research projects and the Comparative Analysis report and will provide a forum for discussion of the relevant issues. STRUCTURE OF THE REPORT 1.13 The remainder of this report is set-out as follows: Section 2: considers the traditional economic theories as to why the earnings of individuals may differ; Section 3: looks at the extent of the gender pay gap in different countries and how it has changed over time, as well as considering why the gap is higher in some countries than in others; Section 4: describes some of the institutional changes that have occurred in various countries that have impacted on the gender pay gap; Section 5: looks at the different methodologies and approaches the national research teams have adopted for each of their studies and the implications this has for the comparative analysis; Section 6: analyses the gender pay gap in the IT, retail and food sectors based on the findings from the national research teams and identifies key issues and trends that emerge from the research; Section 7: outlines the key findings and conclusions of the comparative review.

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11 5 2. THE THEORETICAL FRAMEWORK 2.1 The determination of wages/earnings is long-established subject of economic inquiry. Standard or neo-classical economic theory argues that wages are determined by the inter-play of the supply and demand for labour and that the earnings of the individual worker are equated to the marginal productivity of the worker i.e. the amount added to output by an additional employee. Theories based on Marxist economics and other schools of thought have placed more emphasis on power relationships and conflict between social groups. Nevertheless, the bulk of the academic literature is rooted in the standard micro-economic analysis. 2.2 In approaching the issue of the gender pay gap, we can break the subject down into the causes of pay differences between individuals and the causes of pay differences between social groups. We consider these topics below. WHY DO EARNINGS DIFFER? 2.3 The real economy is, of course, highly complex and involves people working in many different occupations and earning a wide variety of incomes. Building on the standard model as outlined above, economists have generally argued that earnings differences between individuals reflect the market value of what those individuals produce. Thus if an engineer earns more than a farm worker then that is because the output of the engineer is worth more than the output of the farm worker. In periods of fast economic development average earnings can rise rapidly as people move from low productivity/low wage activities to high productivity/high wage activities typically from agriculture to industry. 2.4 While we would expect people to move from low wage to higher wage occupations, there is a limit to this process which helps explain the persistence of wage differentials. In order to be highly productive, workers are likely to require skills and knowledge which may be difficult or expensive to acquire or which may require certain personal characteristics (e.g. high intelligence). 2.5 Much of the literature on earnings differentials focuses on investigating and explaining the relationship between earnings and skills/capabilities. In the 1960s, the long established concepts of skills differentials were refined onto the much broader theory of Human Capital, first developed by Professor Gary Becker. The concept of human capital argues among other things - that people can increase their productivity by investing in themselves.

12 6 2.6 Obvious means of investment in human capital are formal education and in-work training. For example, a person with a degree level education will on average have higher earnings during their working life-time than a person with a secondary level education. However, other factors such as the amount and quality of person s work experience also add to human capital and affect a person s earning potential. 2.7 This leads to the conclusion that earnings reflect human capital investment so that people with higher earnings have invested more heavily in their human capital. These individuals will also be found in the higher paid occupations and in sectors which pay well. However, this does not explain why different individuals have different levels of human capital investment. Various factors may be relevant but it is usually argued that capital market imperfections limit the ability of people to borrow to invest in themselves so that inherited economic advantages and parental income become powerful factors. Persons from poorer socio-economic groups may lack knowledge of the returns to investment in themselves or may have reduced expectations regarding their abilities and earning potential. There is no doubt at all that social class is a powerful influence on participation in education. 2.8 It must also be recognised that some aspects of human capital or ability relate to personal characteristics rather than education. Thus innate abilities intelligence or, less relevant now, physical strength can affect an individual s suitability for certain types of employment. 2.9 The above arguments are developments of the basic concept that pay differences reflect productivity differences. The ability of an individual to exploit his or her productive potential depends, however, upon being able to access employment. A person who for one reason or another is unable to re-locate may be unable to access suitable employment. A further argument is that particular social groups may suffer from discrimination based on social or cultural factors. This is considered further below Before leaving the issue of individual pay differences we should note that the return to the individual from working includes not only pay but various non-pecuniary factors. A university professor who earns less than a similarly qualified person working in an investment bank may well prefer her job because it offers various nonfinancial benefits such as freedom, public esteem and intellectual stimulation. Some workers may accept lower pay if accompanied by flexible working conditions. WHAT DETERMINES THE GENDER PAY GAP? 2.11 The gender pay gap is, however, a difference between groups and not individuals. This is not the only example of earnings varying between groups earnings vary to some degree with age and have been found to vary between racial groups (e.g. in the

13 7 USA and UK), which has been taken as strong evidence as discrimination in the labour market. In fact, many of the very first econometric studies on pay discrimination in the labour market fact focussed on race. As discussed in Section 3, international data show that on average women earn less than men do The diagram below sets out a framework of reconsidering the gender pay gap. As the diagram implies, even if we can explain earnings differences in human capital terms or in terms of wages adjusted for non pecuniary benefits, this opens up a further set of questions. However, the alternative explanations have different policy implications. Figure 2.1 Decomposition of the Gender Pay Gap Observed Gender Pay Gap Is Pay Gap Explained by Human Capital Arguments/Occupation/Non Pecuniary Returns? Yes Analyse Causes of Variation in Human Capital Investment/Occupation al Segregation/non pecuniary returns No Focus on Discrimination Inequalities in Access to Investment Work Life Balance Issues Occupational Structure 2.13 The occupational and sectoral structure of female employment is sometimes put forward as an explanation of the gender pay gap it is, in fact, merely a manifestation of that gap. Sectors of the economy which tend to have higher than average proportions of female employees include retail, hotel and catering, health care services and other public services such as teaching. Many of these sectors have relatively low earnings levels this is especially the case with the retail sector More importantly, however, is the nature of occupational distribution of female employment. Occupations which demonstrate significant levels of female

14 8 employment include clerical and secretarial employment and administrative occupations. These are occupational groups which tend, on average, to be associated with lower relative earnings than other groups. In addition, there is a clear under representation of female employees in the higher skill and therefore higher earning groups, such as managerial, professional and technical occupations These facts beg the question why women are so heavily represented in such sectors and occupations. Three sets of explanation may be identified human capital investment, non-pecuniary benefits and discrimination Human Capital Factors 2.16 It may be argued that women are channelled into low paid occupations because of a lack of skills of human capital. The main sources of variation in human capital investment relate to education, training in employment and work experience. Education is possibly less of a factor in gender pay differences than was once the case. Historically, women have tended to be less likely to proceed from compulsory schooling to further and higher education. In addition, they have also been less likely to undertake study, in significant numbers, in disciplines which result in higher earnings. However, this situation has changed over the last few years in all advanced countries and there has been a much greater equalisation in terms of male and female proportions in further study. This has increased the proportion of females in the labour market who hold higher level qualifications The situation with regard to human capital acquired though work is less clear. Women tend to have quite different labour market experiences from men and are more likely to leave the labour market for a period of time because of childcare responsibilities. Women returning to work after a period away from the labour market have less accumulated work experience than men of the same age. This may impact upon the acquisition of skills and human capital broadly. This factor is less likely to impact on sectoral choices than on occupation/promotion issues (though some sectors may value continuity of employment more than others). Non Pecuniary Benefits 2.18 The second possibility is that women chose lower paid sectors/occupations because of certain non pecuniary benefits or attributes. One facet of this is part-time/flexible employment. Many women are constrained in terms of their labour market participation through caring or family responsibilities. An inability to access affordable, full time child care provision of an acceptable quality is more likely to constrain the labour market participation of women than of men. This may result in some women working part time rather than full time, or being able to access only employment opportunities close to home, rather than being able to commute any

15 9 significant distance on a daily basis. The overall effect is to limit the potential employment opportunities which some women can realistically take advantage of. This kind of problem may be exacerbated in rural areas, where physical barriers to employment may be even more of an issue than in urban areas More generally, many women may for reasons of work/life balance rationally choose occupations/sectors where continuity of employment is relatively unimportant thus maximising their ability to alter working patterns but in so doing they limit the scope for human capital investment. Discrimination 2.20 Over and above the factors highlighted above, we cannot discount the fact that in some situations female earnings may be lower than male earnings simply as a result of labour market discrimination. In some instances, human resource processes have not adapted to changes in the overall position of women in society and indirectly contribute to discrimination against women. Many countries now have some form of employment equality legislation that outlaws discrimination based on gender and this is looked at in more detail in the final section of this paper. CONCLUSIONS 2.21 We have identified three broad hypothetical causes of the gender pay gap varying levels of investment in human capital, occupational choices which relate to work/life balance and discrimination. Without pre-judging the issue, we consider it unlikely that blatant discrimination will prove to be a major factor. However, if the explanations lie in the other two issues, this does mean that that policy action is in any sense unnecessary or unjustified. However, effective policy must be based on sound analysis.

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17 11 3. QUANTIFYING AND EXPLAINING THE GENDER PAY GAP 3.1 The previous section established the theoretical background on the gender pay gap and discussed some of the key factors that lead to differences in the earnings of men and women. Following on from this, we now focus on the statistical information available on the gender pay gap. In particular, this section looks at how the gender pay gap differs across various countries and how the gap has changed over time. We also consider what the data tells us regarding the extent various individual characteristics (e.g. human capital, family status) impact on the gender pay gap. 3.2 Advances in statistical techniques and software applications, facilitated by the greater availability of detailed data sets on individual wages and characteristics, has led to a substantial body of literature on quantifying and explaining the gender pay gap. Econometric models such as the Oaxaca decomposition have been at the centre of such investigations and have helped to further our understanding of the causes of the gender pay gap. 3.3 The data presented in this section is largely based on the findings of recent research by the OECD and the European Commission. In addition, the scope of the analysis extends to countries outside the EU, including Australia, New Zealand and the US, which act as important comparators in terms of the extent of the gender pay gap and how it has evolved in these countries. QUANTIFYING THE GENDER PAY GAP An Overview of the Data 3.4 Table 3.1 sets out the ratio of gross hourly earnings of women to men in a selected number of countries from a study in the 2002 edition of the OECD Employment Outlook. In this instance, the measure of the wage gap is based on median rather than on average earnings, given that the former is not affected by extreme values at both ends of the wage distribution. The available information on earnings has been derived from household surveys (except in Sweden), with data from the European Community Household Panel (ECHP) used for the majority of the European countries. The ECHP is the only harmonised data source at EU level which provides detailed information on earnings and labour market status at the individual level for all sectors, facilitating the analysis of the link between earnings and various personal and job characteristics. 3.5 Caution should be exercised when making cross-country comparisons of the data, given that hourly earnings are calculated on the basis of slightly different definitions

18 12 of wages and hours worked across countries. The earnings concept for the ECHP countries also contains overtime pay and bonuses. Table 3.1 Female/Male Wage Ratio for Selected OCED Countries Year Full-time wage and salary employees Australia All wage and salary employees Austria Belgium Canada Denmark Finland France Germany Greece Ireland Italy Netherlands New Zealand Portugal Spain Sweden Switzerland United Kingdom United States OECD Unweighted Average Source: Employment Outlook 2002, OECD 3.6 Table 3.2 details the ratio of the average gross hourly earnings for women relative to those of men for persons working in the private and public sector, based on earnings data of all individuals employed 15 hours or more, in selected countries in the EU. Specifically, these are countries for which information from the ECHP is available. This excludes Luxembourg, Finland and Sweden due to a lack of available data, though data on the gender pay gap in Finland and Sweden is presented in Table 3.1. The information contained here comes from the preliminary findings of a study contained in the 2002 Employment in Europe published by the DG for Employment & Social Affairs.

19 13 Table 3.2 Female/Male Wage Ratios in the Private and Public Sectors in the EU 1998 Private Sector Public Sector Austria Belgium Denmark France Germany Greece Italy Ireland Netherlands Portugal 76.6 n.a. Spain United Kingdom EU Average Source: Employment in Europe 2002, DG Employment & Social Affairs 3.7 An important observation is that the data presented here is based on hourly earnings, which may give an indication of the true price of labour, though it does not give an insight into the differences in take-home pay between men and women, given that women are more likely to work part-time than men. International Comparisons 3.8 The data clearly show that in all countries average female hourly earnings are below those for males, whether measured for part-time or full-time workers. In both the EU and the OECD the average earnings for women were 84% of average earnings for men. The difference between average male and female earnings is lowest in Australia, New Zealand, Belgium, Denmark, France, Italy and Portugal, while at the other end of the scale, the gender pay gap is highest in the US and Switzerland. 3.9 Because a large proportion of the female workforce holds part-time jobs, it is important that they are also included in the analysis. In nearly all cases when looking at the data for all workers (i.e. full-time and part-time), the gender pay gap widens, particularly in Ireland, New Zealand, Spain, the UK and the US. This can be attributed to lower hourly wages for part-time workers. In the remaining countries, however, there is little difference between the gender pay gap for full-time and all workers, which suggests that workers in part-time jobs in these countries are not subject to an any pay penalty.

20 The wage gap in the private sector is much larger than that in the public sector, with average earnings for females as a percentage of average earnings for males at 76% in the former compared to just under 89% for the latter in the EU. In Belgium and Greece, there is almost no difference between average male and female earnings in the public sector, while in Italy average earnings of women in the public sector are above those for their male counterparts Data quoted by the American Federation of Labour-Congress of Industrial Organisations (2002) illustrates that in many countries around the world women are more likely than men to hold low-paying jobs. For example, in Japan about 37% of working women are in low-wage employment, compared to just 6% of men. Similar figures are evident in the US (33% of women versus 20% of men), the UK (31% of women versus 13% of men) and France (25% of women versus 8% of men). Changes in the Gender Pay Gap over time 3.12 Figure 3.1 illustrates how the gender pay gap has evolved over time in different countries. This is based on data from the OECD Labour Statistics Database and is derived from a range of data sources, from social security data to income surveys. While the earnings definitions may vary across countries, the data still provides an insight into how the gender pay gap has changed over time All countries have experienced some degree of reduction in the gender pay gap since the 1960s. In the US and Canada this has been due largely to gains made by women, while men's earnings have remained relatively unchanged (Scott and Lochhead, 1997). The wage gap has decreased most in France, the UK and US, whereas by contrast Australia, Japan and Sweden have experienced little change since the 1970s Looking at the narrowing of the gender pay gap in the US, Blau and Kahn (2000) comment that this could be due to the entry of new cohorts into the labour market, each one better prepared and possibly encountering less discrimination than previous ones. On the other hand, they also suggest that it could also be due to an upward progression of the gender pay gap within given cohorts, or even a combination of both these factors. They find in the US that between 1979 and 1999, the gender pay gap has narrowed for almost every age group, indicating that each new cohort of women is indeed faring better than previous ones, with gains for the two youngest cohorts heavily concentrated in the 1980s. Increases for women in the cohort were more evenly spread over the 1980s and 1990s, whereas substantial gains for women over 54 did not appear until the 1990s.

21 15 Figure 3.1 Ratio of Female to Male Wages in Selected Countries Australia Canada Japan 50 United States Germany Finland France United Kingdom Italy Sweden Source: OECD Labour Statistics Database 3.15 Changes in public policy and the introduction of equality legislation may have impacted on the evolution of the male-female wage differential. In addition, the differential may also have been affected by changes in the supply of and demand for male and female labour. For example, if a sector with a high concentration of female employment experiences a period of strong growth, this could increase the demand for female labour and put upward pressure on female wages.

22 16 EXPLAINING THE GENDER PAY GAP 3.16 So far we have looked at the unadjusted male-female wage gap, which reports the directly observed differences in pay men and women receive. The next step is to investigate the evidence relating to explanations of this gap. As already highlighted in Section 2, this can be due to differences in individual human capital and job characteristics The following analysis draws largely on the recent study of the gender pay gap across the EU contained in the 2002 Employment in Europe publication from the European Commission. Using data from the ECHP for the countries listed in Table 3.2, the relationship between earnings and the personal and employment characteristics has been estimated for both males and females. This exercise has also been carried out by the OECD in the 2002 OECD Employment Outlook using the same data. Human Capital 3.18 The studies named above conclude that men obtain a higher return on educational attainment levels and specific skills than for women in all Member States Women who spend a long time with an individual employer appear to gain a greater financial return in consequence than do men, particularly during the initial years of their working careers, but the relationship between the overall length of working career and financial rewards for staying the labour market is more favourable for men than for women Periods out of the labour market do adversely affect earnings the Employment in Europe analysis found that periods of labour market inactivity had a negative impact on earnings for persons in Denmark, Luxembourg, the UK, Ireland and Portugal with a particularly adverse effect for women in the UK In the US, the return to education for women is particularly high for those with a third-level qualification. Looking at earnings data for full-time women classified by educational attainment, Bowler (1999) comments that women without a high school diploma earned only 40% as much as women with a college degree. Even women with just some college education or an associate degree made just 67% of the earnings of their counterparts with a 4-year degree. However, regardless of education level, Bowler observes that female full-time workers earned less than men, with the gap being relatively similar for all of the education groups.

23 These data suggest that human capital investment levels as measured by formal education cannot explain the gender pay gap but that the pattern of employment over time may be an important factor. Family Status and Caring 3.23 The Employment in Europe data indicate that men who are married with children tend to have higher wages than single men without children. However, women do not benefit from a similar pay premium and in fact married women with children have lower average wages than those of single women without children. Only in Denmark and Finland there was no earnings difference by family status between men and women Harkness and Waldfogel (1999) also found that the number of children a woman has can impact on her earnings. Looking at the hourly wages of full-time and part-time workers using data from the Luxembourg Income Study, they find in Canada and the US that women incur a pay penalty of about 4% for one child. This increases to 5% in Canada and 7% in the US for two children and up to 13% in Canada and 11% in the US for three children or more. The impact on female earnings of children is also found to be more significant in the UK, where having one child reduces a woman's wages by 8%, two children by 24% and three or more children by 31%. In contrast to this, the pay penalty for each additional child is found to be much lower in Finland, while no significant pay penalties are evident in Sweden. Temporary Contract and Part-time Workers 3.25 The EU data indicate that the gap between earnings for temporary contract workers and those of permanent workers is greater for men than for women in Belgium, Germany, the Netherlands, Finland and the UK, while more pronounced for women in Spain, France, Portugal and Austria Bowler (1999) analysed data on weekly hours worked by men and women full-time worked in the US in She found that men were more than twice as likely as women to work 49 or more hours in a week and women were about 3 times as likely as men to work 35 to 39 hours per week. She also lists the possible reasons for the difference in work hours as being due to women more likely to be engaged in family caretaking responsibilities or that men are more likely to work in occupations and industries where overtime or extended hours are required or frequently available.

24 18 Sectors and Occupations 3.27 The EU data indicates that the gap between the wages of men in supervisory and managerial positions and those in subordinate positions is much greater than for women. In other words, men gain more form promotion than do women. This is particularly evident in Ireland, Greece and the UK. It is likely that men when promoted are promoted to higher levels than are women so that gender difference in career progression are likely to exacerbate the gender pay gap Even after controlling for personal and job characteristics, significant differences in earnings between men and women remain within sectors, such as financial intermediation, public administration, education, health and social services. Only in the hotel and restaurant sector are women s average earnings significantly higher than those of men with the same personal and job characteristics A notable feature of the EU data, which has also been noted elsewhere, is that in sectors with a relatively high share of female employment, earnings for both men and women are below the national average. In other words, female dominated sectors are low paid sectors Using data from the ILO's 1996 October Earnings Inquiry, Robinson (1998) notes that women earn lower wages than men in most occupations in most countries. In some cases it is reasonable to infer that women's lower pay is because they have, on average, lower seniority in the occupation/grade than men. This is most obviously the case where there is a single salary scale applicable to both men and women with increments received solely on the basis of seniority, as is likely in the public service in many countries. Robinson also comments that the enlargement of female wage gaps in public service employment in some countries may arise from the spread of personal assessment as the basis for granting annual wage increases, since women tend to do less well under this sort of payment system Over time, women in the US have remained largely concentrated in their traditional occupations. Bowler (1999) observes that between 1983 and 1998 in the US, the most notable change was their movement into managerial and professional speciality occupations, particularly the executive, administrative and managerial jobs in this category. Women were, however, still as likely to be found working in technical, sales and administrative support jobs in 1998 as they were fifteen years previously Bowler goes on to note that while women in the US tended to work in lower-paying occupations than men, women generally earned less in the same occupation. In addition, while this gap in earnings has persisted during the period 1983 to 1998, there

25 19 has been some modest gains for women in the executive, administrative and managerial occupation group. Discrimination 3.33 Blau and Kahn (2000) illustrate that the unadjusted (for personal and job characteristics) gender pay gap in the US in 1999 was around 73%. Using data from the US Panel Study of Income Dynamics, they found that the gap narrowed to 81% after adjusting for human capital differences and to 88% when adjusting for other variables such as occupation and industry. While the gap in pay was reduced significantly after accounting for other variables, a substantial proportion remained unexplained and potentially due to discrimination However, they do note that the gap may well reflect factors apart from discrimination that may not have been controlled for in the analysis. While they refer to a number of studies that have looked at the quantitative aspects of discrimination, they also remark that additional evidence on discrimination comes from court cases. Many employment practices that explicitly discriminate against women used to be quite prevalent in the US, though these practices have receded. However, they note that recent court cases suggest that employment practices still exist which produce discriminatory outcomes for women. CONCLUSIONS 3.35 The single most important factors contributing to the gender pay gap in the EU are: Earnings differences between men and women with children; A high concentration of women in low paying sectors and occupations; and Lower earnings of women in female-dominated sectors and occupations that cannot be explained by productivity differences between sectors and occupations In Ireland, Denmark, Austria and the UK the gender pay gap is significantly affected by differences in the composition of the male and female workforce. However, outside of these countries, particularly in many Southern European Member States, the observed gender pay gap seems mainly due to differences in the remuneration of personal and job characteristics. Therefore, in many EU Member States, even if the composition of the male and female workforce were identical, substantial gender pay gaps would persist.

26 The US studies, as well as the EU data, indicate that the gender pay gap cannot be explained by differences in formal qualifications. Occupational/sectoral employment choice is important while a key factor appears to be career progression and promotion patterns. The role of discrimination remains unresolved.

27 21 4. INSTITUTIONAL FACTORS IMPACTING ON THE GENDER PAY GAP 4.1 So far the focus of the determinants of the gender pay gap has been the individual characteristics of the employee. Other external factors such as the labour market environment, however, also play an important role. These factors include to what extent provisions are made in legislation to outlaw pay discrimination and whether the participation of women in the labour force is facilitated through family-friendly work policies. This section considers these and other factors, to what extent they vary across different countries and the implications they have for the gender pay gap. In particular, we focus on the type of legislation and initiatives that have been implemented to date across the EU. CHANGES IN LEGISLATION 4.2 As observed in Section 3, the gender pay gap in Australia, New Zealand and the EU narrowed substantially during the 1970s. Much of this occurred following the introduction of equal pay legislation but the causal role of legislation is disputed. 4.3 To protect women's rights to pursue fair wages, the US Congress passed an Equal Pay Act in 1963, along with provisions of Title VII of the Civil Rights Act of 1964, which guarantee that women will receive equal pay for equal work. By the mid 1980s, most EU and OECD countries had passed equal pay and equal opportunity laws. 4.4 The impact of equal pay legislation will depend on the effectiveness of the legislation's enforcement as well as its provisions. Blau and Kahn (2001) make the point that in general, it is expected that equal pay laws mandating equal pay for equal work within the same occupation and firm will have a relatively small effect on the gender pay gap. This is due to the considerable segregation of women by occupation, firm and industry. Laws requiring equal opportunity, hiring preferences and/or comparable worth (i.e. equal pay for work of equal value to the firm, regardless of specific occupational category) have potentially larger impacts. 4.5 Australia is the only country to have implemented a national policy of equal pay for work of comparable worth through its labour courts. Provisions for comparable worth or pay equity are, however, also provided for in Canadian legislation, with it being applied to both the public and private sectors in Ontario. Weiner (2001), in a review of pay equity legislation in Canada, outlines its components, which includes the involvement of unions and the need for gender neutral job evaluation systems. However, lack of compliance, particularly among small employers which account for 65% of working females 60% of working males, has found pay equity legislation having less of an impact then it might otherwise have had.

28 22 FAMILY FRIENDLY WORK POLICIES 4.6 As female labour market participation has increased significantly in most countries across the OECD, there has been an increased demand for more flexible work practices and a focus on family friendly policies in the workplace. The provisions of such policies and practices differs across countries and even amongst firms. 4.7 In the US, employed women are more likely than employed men to provide care for a child, a spouse or partner with disability, or elderly relatives. Heymann (2000) cites that many of the disadvantages women face in the workplace are directly associated with their disproportionate caregiving activities. Her research shows that workplaces seldom, if ever, have policies in place to help workers care for dependants, while the lack of community and government support further exacerbates inequalities caused by women's greater responsibility for caregiving. As a result, they are more likely than men to cut back on employment to meet family care needs. 4.8 Heymann cites the Family Medical Leave Act as the only federal legislation in the US designed to address the work-family issue. Passed in 1993, this requires some employers to provide unpaid job-protected leave under certain sets of circumstances. However, many workers are not covered under the Act because they work for small employers that are excluded from the provisions of the Act, or they have recently changed jobs, or are part-time workers. In addition, the Act does not cover the common illness of young children that cause most parents or guardians to miss work. 4.9 The high cost of childcare in the US is especially problematic for low income families who earn too much to receive government assistance, but too little to support themselves. Heymann points out that as a result, low income parents are more likely to interrupt work because of the lack of childcare facilities available to them By international standards the US does have a relatively weak entitlement to maternity leave, consisting of an unpaid 13-week period and was only introduced in In contrast, most OECD countries have a much longer period of leave and this is usually paid In line with Community legislation, all EU Member States have introduced the right to maternity leave, parental leave and special leave for sick children or dependent adults, though diversity still exists across countries in the length of leave and whether or not it is paid. For example, Fagan et al (2001) point out that maternity leave varies between 14 weeks in Germany and 28 weeks in Denmark, while parental leave varies between 13 weeks in the UK and 3 years in Germany, Spain, France and Portugal. However, they also find that women s careers are penalised by periods of long parental leave, through delays in career development and promotion.

29 Commenting on childcare in the EU, Fagan et al find that there have been significant changes in provision during the 1990s, though this has been concentrated almost entirely in relation to children aged 3 to 6 years old. Only Sweden, Finland, Denmark and France have childcare services that cover more than a third of small children According to Rice (1999), few countries in the EU make significant public provision of childcare for children aged less than 3 years. An alternative in many countries, however, is to subsidies the cost of private childcare through tax concessions or direct cash benefits. Countries such as Belgium, France, Greece, the Netherlands and Spain allow families to offset some fraction of their childcare costs against tax Evans (2001) finds that many firms in Australia, Japan, the UK and US go beyond the legal minimum in their provisions of family-friendly arrangements. The familyfriendly policy most commonly offered by employers in these countries is a change in working hours, such as flexi-time and part-time working. Evans also finds that the public sector (which tends to employ a high proportion of women) is more likely to provide family-friendly arrangements and in many instances large firms are more likely to do so than smaller ones, especially in the case of Japan. He also finds evidence that the provision of such policies varies with the characteristics of the employee: more highly-skilled workers and those with longer tenures tend to be offered these types of benefits Looking at firms in the EU (though the data is more restricted for these countries than those cited above), Evans notes that a high proportion of firms in European countries appear to provide extra-statutory family leave benefits, such as sick child leave, extra maternity leave and extra parental leave. In addition, many also offer changes in working hours. However, relatively few firms, both EU and non-eu, provide help with childcare. WAGE SETTING POLICIES 4.16 Preston and Crockett (1999) in their analysis of the gender pay gap in Australia, point out that the more centralised the wage setting system is in a country, the more equitable the outcome for gender pay equality. This arises as a result of policies which compress the wage structure and raise the bottom of the wage distribution, which indirectly benefits women, given that they are more likely to be found in lowpaying jobs. This point is further illustrated by Gregory (1998), who compares the decentralised bargaining system of the US labour market, where there is a very wide dispersion of pay, to the more centralised systems of European labour markets, where pay distributions tend to be more compressed. Gregory also highlights that the large increases in women s pay that occurred in Australia, New Zealand and the UK have been delivered through centralised wage fixing institutions or an extensive system of inter-linked collective bargains.

30 During the 1990s in Australia, there has been a move towards a more decentralised system of wage setting. At the national level, Peston and Crockett note that there has been no significant change in the relative earnings of women to men during this period. However, at a disaggregated level, they find that some States that have a system of individual bargaining, such as Western Australia and Tasmania, have a gender pay gap higher than in States such as New South Wales where a collective bargaining system exists Blau and Kahn (2001) identify three possible reasons as to why countries with systems of centrally-determined pay usually have smaller gender wage differentials. First, centralised systems that reduce the extent of wage variation across industries and firms are likely to lower the gender differential, all else equal. Second, since in all countries the female wage distribution lies below the male distribution, centralised systems that consciously raise minimum pay levels, regardless of gender, will also tend to lower the gender pay gap. Finally, the impact of gender-specific policies to raise female wages may be greater under centralised systems where such policies can be more speedily and effectively implemented Controlling for the effect of parental leave, unemployment insurance and job protection policies, Blau and Kahn find that collective bargaining does indeed tend to reduce the gender pay gap. In this analysis, it was not possible to control for other variables closely correlated with collective bargaining, such as social programmes that impact on the gender pay gap that differ in generosity across countries. However, centralised bargaining has in countries such as Sweden acted as a driver of such social programmes Minimum wages are lower relative to the median in the US than in most other Western countries. Looking at the impact of minimum wage legislation and controlling for the presence of centralised bargaining, Blau and Kahn note that the effect of minimum wages on the gender pay gap is small and insignificant. They also point out that in several countries with minimum wages, such as Austria, Norway and Sweden, this is set in collective bargaining agreements covering most of the labour force. This does make it difficult to disentangle the impact of minimum wage legislation on the gender pay gap from the effect of collective bargaining. In other countries, like the Netherlands, the UK, Japan, New Zealand, Canada, the US and Ireland, minimum wage legislation has been passed. Overall, minimum wage legislation was found to have a more benign impact on the gender pay gap than collective bargaining.