UK Gender Wage Gap Quantified

School of Economics postgraduate student William Cairns explains the causes and implications of the UK gender wage gap.

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While it is important to acknowledge that gender differences can naturally cause wage disparity because human capital factors such as work experience, education, job skills necessarily lead to differences in productivity levels, it is equally important to acknowledge that gender discrimination does exist. In fact, it is another important factor of the gender wage gap. Discrimination exists when employers are compensated differently despite both individuals offering just as much value to the company. Gender discrimination is a failure in the labour market.

Studying the structure of wages holds significance for economists due to its association with economic welfare. Consequently, determining the causes and implications of gender pay differences is vital.

In the previous semester, I conducted research aimed at quantifying the main determinants of the gender wage gap using regression techniques on 2004-05 individual income series, provided by the UK data service. The year 2004 was chosen because it was the year in which the gender pay gap was the widest in the past two decades.

My findings mostly align with the current literature on the topic. My analysis finds a difference in the orientation of part-time and full-time work between genders, with females in more part-time employment than males (35.2 per cent compared to 7.9 per cent). This, alongside the lower earnings faced by part-time work, serves as a main contributor to the gender wage gap. The lower earnings associated with part-time work is caused by the lower skill required and the higher non-pecuniary benefits (such as flexible time), allowing wages to still be competitive at lower rates.

My data also indicates the presence of gender segregation in occupations in the UK labour market. I observed that manufacturing and managerial positions tend to be male-dominated, while jobs involving health/social care and education were more popular amongst women. However, the three occupations with the greatest average wage rate enhancing potential are professional, associate, and senior management, respectively. Sadly, 62 per cent of these three positions are held by males. Consequently, this division in occupations is an additional barrier to closing the gender wage gap.

Aside from the obvious moral issues that discrimination brings, it is also economically inefficient. By not allocating the jobs to those workers who are most productive firms are placed at a comparative disadvantage.

Becker (1957) finds that discriminatory firms disappear in the long run when facing competition. According to Becker, the market should naturally remove discrimination. Some economists suggest that gender bias is counter-cyclical as employers respond to labour market tightness. Gender discrimination is high during recessions due to the fact that the number of unemployed people far exceeds the number of vacancies, creating more opportunity to discriminate.

A surprising result was found considering educational levels when taking the factor of education levels into consideration. Data shows that in general, higher proportion of men have higher education degrees than females, 31 per cent vs. 22 per cent. The significance of this to the gender wage gap is apparent with the strong association of higher education with higher wage rates. However, this could be representative of a vicious cycle wherein women’s lower level of education qualifications may be explained by the existing gender discrimination against them. If women perceive high amounts of gender discrimination in the labour market, they will expect poor returns from their investments in human capital, and thus will be less inclined to further their education. Significantly, this initial gender discrimination may generate a spiral effect on the gender pay gap. Previous research has also analysed differences in investment in human capital between genders, showing that women usually do not place as much importance in educational qualifications in anticipation of shorter work lives and prospects (Mincer and Polachek, 1974).

It is this spiral effect that I think we as a university can start to tackle. Potentially, we could lower tuition in order for degree qualification to be perceived as having lower investment risk. Also, by helping more women access fields associated with higher earnings, we may help reduce the occupational segregation.

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