Related people: Melanie Jones, Victoria Wass

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The gender pay gap has narrowed since it was first measured in the UK in the early 1970s, however since 2010 this trend has stalled and the gap currently remains at about 25%.

With the recent implementation of new legislation requiring UK companies with more than 250 employees to publish their gender pay gaps this blog explains how the gender pay gap is measured and asks if the new law will help to reduce the gap in average pay between men and women. It further explores the recent experience at the BBC where there has been a requirement to disclose individual salaries and considers if this level of action is needed to really tackle inequality.

Harriet Harman MP thinks the new gender pay gap reporting legislation will be “a cracking start” in tackling the gender pay gap and Robert Joyce of the Institute of Fiscal Studies agrees that this “could be at the heart of the solution”. Kate Andrews of the Institute of Economic Affairs disagrees describing the statistic as meaningless because it does not compare like-with-like. Moreover, it risks unintended consequences if for example organisations avoid employing women in entry level jobs for fear of worsening their gender pay gap.  

What is gender pay gap reporting?

Companies with over 250 staff, now have a legal obligation, to report annually on the difference in average hourly pay between men and women across their organisation, their gender pay gap.

 

Trends in the UK Gender pay gap 1997-2017

MJ Blog graph

 

Source: Authors calculations based on the UK Labour Force Survey 1997-2017. Figures represent updated values from Figure 1 and Figure 3 in Jones et al. (2018).

 

In the graph above, the solid lines track raw national gender pay gaps (in constant 2009 prices) of the kind that will be reported at the company level under the legislation, separately for the public (blue) and private (green) sectors. This uses data from the government household survey, the Labour Force Survey (1997- 2017).

The above graph highlights four major points: Firstly the gender pay gap is smaller in the public sector than the in the private sector. This fits with the view that the public sector is a good and fair employer, a notion that extends back to the formation of the civil service in the mid-19th century. It is still regarded as a ‘pace setter’ in terms of equal opportunities. Secondly, the falling trend in the gender pay gap reflects gender pay convergence in both public and private sectors. This continues a longer-term narrowing trend but this stalls in 2010 (Jones et al., 2018).

It is common practice among economists to divide the raw pay gap into two parts, one part which is due to differences in characteristics between men and women and the jobs that they do, the main ones being educational achievement, job tenure and part-time status, and a second part which is due to the different treatment of men and women with the same (or very similar) characteristics. This separation imparts greater meaning to the statistic as advocated by Kate Andrews. The first part is referred to as explained since it arises due to differences in observable characteristics between men and women. The second part is unexplained. Since the latter is not due to different characteristics we refer to this as the potential wage gap due to unequal treatment. It is this type of gap that was claimed recently by three BBC on-air presenters - Carrie Grace, Sarah Montague and Martina Navratilova - where it was argued that pay differentials with their male counterparts exceeded what might reasonably be expected on the grounds of differences in experience and job roles. Indeed, confirming this, Carrie Grace subsequently won her equal pay claim against the BBC.

The dashed trend lines isolate this unexplained component of the gender pay gap separately for the public and private sectors. The difference between the raw gap and the unexplained gap is the explained component, which accounts for about half the gender pay gap in each sector. The graph shows that the explained gap has narrowed over time. As women have increased their educational achievement and labour market attachment, gender differences in these characteristics have been reduced. As the explained part of the wage gap has narrowed and stalled so has the gender wage gap itself. 

Lastly, though there is some year-on-year variation there is no noticeable downward trend in the unexplained component, which accounts for the other half of the gender pay gap and arises from differences in treatment of the same characteristics. This suggests unequal treatment has remained largely constant over the last twenty years and is surprising, especially in the public sector, given the number of formal equality measures implemented over that period.

Pay gaps and pay reporting at the BBC

The reporting of large pay differences at the BBC for a small group of highly paid men and women in similar roles (or at least roles which do not look to be sufficiently different to warrant the size of the pay differential) has been used to claim unequal treatment. Like all organisations, the BBC is subject to the law on equal pay. Like other public sector organisations, the BBC has an obligation under the Public Sector Equality Duty to actively promote equality of opportunity and outcome, including in relation to pay.

The BBC reported an overall gender pay gap of 9.3% and falls within the bottom half of reported organisational gender pay gaps. Indeed, Price Waterhouse Coopers concluded that “Our analysis has shown that, where pay differences have been identified amongst employees in similar roles, these are typically driven by material and justifiable factors unrelated to gender.”

The BBC is unique in the UK in that, in July 2017, it was required to publish the names and salaries of all its staff who earned more than £150,000 during the financial year 2016-17. It was this requirement, and not the gender pay gap reporting, that revealed to women at the BBC the salaries of their male counterparts. 

The requirements of statutory gender pay gap reporting are much lower than this. Organisations must publish the average salary gap, the average bonus gap and the percentage of women employed within each of the four salary quartiles. The latter will flag up differences in the gender distribution across the salary structure, but will not identify unequal pay. It falls well short of the payroll transparency that gave Carrie Gracie the information she needed to prove unfair treatment at the BBC.

Women have invested in education and attached themselves to the labour market and thereby reduced the explained part of the gender pay gap. The unexplained gap is largely outside their control. It is sustained by an information gap and is likely to remain as long as the information on individual salaries is hidden. 

Gender pay gap reporting is an important step. It provides more information on pay: information that can signal potential inequality and can promote cultures and practices of transparency and scrutiny which might start to narrow the unexplained component of the gender pay gap. Progress will likely be faster at the BBC because, at least for salaries over £150,000, women have access to the information they need to assess whether the pay gap is unexplained and therefore to hold the organisation to account. In January 2018, Germany introduced legislation to facilitate disclosure of co-worker salaries. Given the recent experience in the UK it will be interesting to compare the impact of these different types of legislation on the future gender pay gap within each country. 
 

 


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