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Analysis The gender pay gap tells us less about wages and more about company power structures

Economist and lecturer Dr Aedín Doris looks at the recent publications of gender pay figures and what it means for equality in the workplace.

RECENTLY, GENDER PAY gaps are in the news a lot. This is because, under new legislation, all companies with more than 250 workers are now obliged to publish indicators of their gender pay gap on their websites. So what do the gender wage gap figures mean? And what do they not mean?

The figure you’ll hear referred to most often is the average (or mean) gender pay gap. This gives the gap in average hourly pay between men and women, expressed as a percentage. A positive percentage means that men earn more per hour on average in that company than women do, while a negative percentage means that women earn more. Most – but not all – companies have reported a pay gap that’s positive, so men earn more on average in most companies, to nobody’s great surprise.

It’s important to point out that the pay gaps we’re seeing are not due to the fact that women tend to work fewer hours per week than men – for example, the latest CSO figures indicate that fewer than 13% of male workers work part-time, compared to nearly 31% of female workers. Because the gap is calculated in terms of the hourly (not weekly or monthly) wage rate, the lower working hours of women are already taken into account.

Distorted figures

However, the average gender pay gap does have drawbacks. The most important drawback is that it can be distorted by a few very high or very low hourly wages. For example, you could have a company where almost all the women are paid poorly, but one woman is very senior and got a huge bonus last year. That one woman’s earnings could pull up the average enough to make the gender wage gap seem respectable.

For those who are interested in the gory details that make this possible, the average gender pay gap is calculated as follows: the total annual pay (including bonuses) of all women in a given company is divided by the total annual hours worked by those women to give average hourly pay for women. The same calculation is then done for men. Finally, women’s hourly pay is subtracted from the men’s hourly pay and the gap is converted into a percentage by dividing by the men’s hourly pay.

To address the drawbacks of the average, the legislation requires that other figures are also published. The most important of these is the median gender pay gap.

The median hourly pay is calculated by lining up all the hourly pay figures in order and finding the one that’s in the middle. The median gender pay gap is the number you want to look at if you want to know the gap between the ‘typical’ male and female worker – if one or two workers are on atypically high or low pay, this won’t affect the median.

Usefully, mean and median gender gaps are also published separately for part-time and temporary workers and for bonuses and benefit-in-kind. This is because of a concern that, while women may be paid similarly to men in terms of their base pay, men may be favoured in terms of bonuses and perks.

Finally, companies must publish the proportion of men and women in the quartiles of their hourly pay distribution. In other words, they must divide workers into four equal groups according to their hourly pay – the bottom, lower-middle, upper-middle and top, and then show the proportion of men and women in each of these groups.

What do the figures tell us?

The idea of publishing these various figures is to give a good picture of each company’s hourly wage ‘distribution’ and where women and men lie in that distribution, without giving away details that would break employee confidentiality or reveal commercially sensitive information. In general, it’s doing a good job of that.

It’s important to say, though, that these figures don’t tell us anything about gender discrimination. This is because the hourly pay figures that are the basis for the calculations are not designed to compare like with like.

Within a given company, all the most qualified workers could be men and all the least qualified workers could be women. In this case, it would be surprising if there weren’t a substantial gap in average and median pay. On the other hand, if a company had a gender pay gap of zero, it might look like there was no possibility that there was gender discrimination there – but if you were then told that all the most qualified workers were women, you might revise your view.

So, if they’re not useful for pinpointing discrimination, what use are the gender pay gap figures? Their most important use is in encouraging companies to address where women work in their organisation – particularly their prevalence in senior roles. Even if men and women are always paid exactly the same hourly rate at each level of a company, if most of the senior management are men, the average gender pay gap can be substantial.

How can you judge if a company’s pay gap is ‘big’ or ‘small’? It might help to know that nationally, the gender pay gap is about 14%.

This figure is calculated over all workers, not just those working for large companies, but roughly speaking, if your company’s gap is much bigger than 14%, it’s big.

The gender power gap

Companies with big average gender pay gaps are quick to point out that their wage gaps are not due to workers at the same level being paid less if they’re women. But the alternative explanation – that women are less likely to be appointed to senior roles – is not much less worrying.

For example, Ryanair has a mean hourly pay gap of 46%. The median gap is a much smaller 4%. How can there be such a big gap at the mean but not at the median? Ryanair itself give us the answer: 96% of its pilots are male. If pilots are excluded, the average pay gap is -9%, the negative number telling us that excluding pilots, women are paid on average 9% more than men. Excluding pilots may be valid if there are no female pilots to hire.

However, Ryanair trains pilots as well as hires them, and now says that it is seeing more women coming through its pilot cadet courses and that this will address the problem in years to come. Presumably, the high mean gender pay gap figure has encouraged Ryanair to push the recruitment of women pilot cadets.

This practice of companies claiming that their big pay gaps aren’t so bad if their best paid workers are excluded can sometimes be less reasonable than Ryanair’s. For example, Arthur Cox solicitors has a mean gender gap of 52%. Even at the median, the gap is 17%. Why? Because partners get paid a lot more than non-partners, and 30% of their male workers are partners, compared to just 8% of their female workers. But partnership is a position into which workers are promoted – unlike pilots, there is no special training requirement. Undoubtedly, companies with these structures are now examining how they choose who makes partnerships.

The public sector has a much better record on pay equality than the private sector, but even in the civil service, the mean gap in most government departments favours men. The biggest gap reported so far is in the Department of Transport, with a mean gap of 20%. One department, the Department of Children and Equality, has a gap of -4%, so women on average earn 4% more than men. But most departments lie in the 5-12% range.

Although the gender pay gap has closed substantially since the 1970s, when equal pay legislation was introduced, most researchers in the area believe that progress has slowed or stalled in the last decade or so. My own research with my Maynooth colleagues indicates a big impact of children on the pay of women who continue to work with the same company afterwards. The fact that companies are now publishing gender pay gap statistics will encourage them to focus on where the problems lie and how they can address them.

Dr Aedín Doris is a labour economist and lectures in the Department of Economics, Maynooth University.

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