Why the gender pay gap theory just doesn’t add up

Female workforce participation is at a historic high and the gender pay gap is at a historic low. Those two facts alone could make eating a cupcake worthwhile.

‘The reality is that many decisions are made by couples to balance their family and financial needs.’

As International Women’s Day approaches each year, there is the usual flood of commentary on how badly women are doing in the workforce and the persistent gender pay gap. I tend to take as little notice as possible because most of the material is highly misleading.

Consider the inevitable press release of the Workplace Gender Equality Agency. We are told “the national gender pay gap is 13.3 per cent … and this means women earn $253.50 less than men every single week as a result of gender”. Take it from me, this does not mean that at all: women do not earn less than men just because they are women.

The staff at the agency should really know better than to put out such a deceptive release. To be sure, there is grudging recognition by the agency that the gender pay gap is actually the lowest it has ever been. But I guess if you want to maintain relevance, such an admission needs to be well-hidden.

Recall here that it is a legal requirement in Australia that equal pay applies to the same job. This has been the case for decades. What it means is that it doesn’t matter whether the worker is male or female, the same rate of pay applies to the job.

If you really want to understand why the gross gender pay gap is what it is – and at least the WGEA uses full-time earnings, which avoids hours of work, at least to a degree, contaminating the result – it is necessary to account for the factors known to affect earnings. These include industry, occupation, qualifications and job tenure. Economists undertake this sort of multivariate analysis all the time.

When this is done, the gender pay gap almost disappears. And rather than industry and occupation contributing to women earning less than men, in Australia’s case, the impact of regulated wages is actually to inflate the earnings of women relative to men.

What is often forgotten in the debate is that many men have low-paid jobs – think here delivery drivers and labourers – where wages are low and not well-regulated.

Research by University of Sydney economics professor Deborah Cobb-Clark has demonstrated that the occupational/industry gender segmentation actually lifts the relative pay of women in Australia, with all the gender pay action occurring at higher earnings.

The pay gap in many countries, its persistence is essentially the result of women’s dislike of jobs that involve long and unpredictable hours as well as work travel. Picture: Istock

Of course, industry and occupational gender segmentation – some industries/occupations are female-dominated, others male-dominated – may offend feminists who would rather see a more even spread of the sexes. It is interesting that the degree of segmentation has changed little across time and, in some cases, has become more extreme – teaching is an example that has become more feminised.

But this is a different issue to the gender pay gap. Care also needs to be paid to directing – or even attempting to direct – women into occupations or industries that may not be their first preference just because this is seen as progress by policy-oriented feminists. Let’s face it, it doesn’t suit everyone to have a fly-in, fly-out job in the Pilbara. The pay may be great but the sacrifices to family life may be too high for some women (and men) to contemplate.

The overseas literature on the gender pay gap is fairly conclusive: notwithstanding the narrowing of the pay gap in many countries, its persistence is essentially the result of women’s dislike of jobs that involve long and unpredictable hours as well as work travel. This is the firm conclusion of Harvard University economics professor Claudia Goldin, who is the standout researcher in this field.

A recent Swedish study has shown that women’s pay in that country is still not 100 per cent of men’s notwithstanding the vast array of pro-women arrangements, including extended paid parental leave schemes for both parents, flexible working arrangements and highly subsidised childcare. Again the issue is the preference for women to have work arrangements that suit their family situations and to drive work-life balance.

One of the issues that has been in the news lately is the much lower superannuation balances of women relative to men, including on retirement. This, of course, follows from the earnings-related nature of superannuation and the lower lifetime earnings that many women earn compared with men.

By law, however, superannuation is a joint asset of a marriage/partnership and in the event of divorce/separation, the asset is split on a 50-50 basis unless otherwise agreed. In fact, when John Howard was prime minister, consideration was given as to whether couples could set up joint accounts into which employer contributions would be made. It was decided at that time that taxation and other complications made it too difficult.

The reality is that many decisions are made by couples to balance their family and financial needs. Across time, many men have become much more involved in household and child-rearing duties than was once the case. It’s fine for advocates to recommend even more involvement, including men making more use of paid parental leave. But at the end of the day, these are private decisions.

Would adding superannuation contributions to paid parental leave make much difference? Some private firms already do this. In fact, it would make only a slight difference to the final superannuation balances achieved by women – this was demonstrated in the 2020 Callaghan retirement income review. Subject to fiscal pressures, it could still be worth doing.

There is a lot to celebrate in terms of women’s role in the labour market. Female workforce participation is at a historic high and the gender pay gap is at a historic low. Those two facts alone could make eating a cupcake worthwhile.