The gender gap in pay progression: job mobility and job ladders

Lead Research Organisation: University of Essex
Department Name: Inst for Social and Economic Research

Abstract

The median gender pay gap has declined dramatically in the UK from 36.4% in the 1970 (O'Reilly, Smith et al. 2015) to around 18% in the most recent data (ONS 2018). Still, by international standards the pay gap is high: the UK has the fourth largest gender pay gap in the EU and the eighth largest of OECD countries (OECD 2019).
Researchers and policy makers have focused on gender differences in education and labour market experience as the likely drivers of the pay gap. However, today these explanations no longer stand up to scrutiny. Women are on average better educated than men and they are much less likely to withdraw from the labour market for long periods of time. Nevertheless, women earn on average about 10% less than men even when they work full-time and have similar education and labour market experience.
While explanations focusing on women's potential lower productivity as the cause of the gender pay gap have been thoroughly investigated and found inadequate, there is less evidence on the role played by employers. This research will contribute to addressing this gap.
The standard economic model of the labour market assumes that wages are determined by the market and that individual employers cannot choose the wages they offer to their employees. A different model assumes that for a variety of reasons competition is not perfect and employers have some discretion over the wages they offer. This wage setting power is likely to be weaker when workers are mobile. Mobile workers will leave an employer offering wages below the market rate. However, if workers are relatively immobile, employers can exploit this 'immobility' by offering them lower wages. If women are more constrained by family responsibilities in the types of jobs that they will take-up or in the amount of time and effort they can devote to job search, they will generally be more immobile and thus at a disadvantage. Women's family responsibilities might be ultimately responsible for the gender pay gap but not because they limit their productivity but rather because they reduce their bargaining power with firms.
This research project will examine the role of employer wage-setting power in driving the gender pay gap in two ways. First, using data from the UK's largest longitudinal study, it will investigate the extent to which job-to-job mobility patterns differ between men and women, and whether any differences can explain the observed gender gap in pay progression. Second, it will develop an index of employer wage-setting power based on geographical location, industry and cost of travel and test whether the index can explain gender differences in pay progression.
Tackling the gender pay gap is a widely shared goal among policy makers, political parties, women's groups, trade-unions and employer organizations. A better understanding of the factors driving the gap is essential to design effective policies. For example, in April 2017, the UK government has mandated large employers report annually on the pay gap in their organization. If women's lower productivity is to blame for the gender pay gap, such legislation is likely to be ineffective and even counterproductive. On the other hand, mandatory reporting is likely to be more effective if employers' stronger wage-setting power is a significant factor behind the pay gap. More generally, if employers enjoy significant wage setting power relative to some of their employees, this has implications for legislation on anti-discrimination, the minimum wage, trade-unions and family policy.

Planned Impact

Eliminating the gender pay gap is a goal endorsed by the Government, the trade unions, employer organizations, and all major political parties. It is also an objective of many women's charities and organizations supporting equality. The research programme we propose will contribute to a better understanding of the underlying mechanisms and processes that generate the gender pay gap. Our findings will be relevant for several categories of users:
1) Government agencies promoting anti-discrimination and equality
The Government Equalities Office and the Equality and Human Rights Commission are tasked with promoting equality and fairness in all areas of life. Both have an active interest in gender inequalities in the labour market. Our findings will provide evidence on the mechanisms and processes underpinning gender wage inequality and will help these bodies better understand the effect of various policies on the pay gap. Our findings will have direct implications for policies such as the minimum wage, trade-union legislation, antidiscrimination legislation, legislation on encouraging family friendly workplaces, subsidized childcare and maternity and paternity leave provision.
2) Governmental departments involved in economic decision-making
Women's lack of progression is not only a fairness issue but also one of economic efficiency. Closing the gender pay gap is expected to boost the economy and increase employment levels among women. Our findings will be of interest to policy makers in departments such as HMT and BEIS who are keen on increasing employment and productivity.
3) Trade unions
Trade unions strongly support closing the gender pay gap and have publicly lobbied the government to do more in this respect. They are also interested in understanding the structural causes that lead some workers to have more bargaining power than others. Our research will help them better understand what percentage of the gender pay gap can be explained by employer wage setting power and whether job mobility mediates any employer effects. Trade unions will also be interested in the implications of our findings for trade union legislation and other employment policies.
4) Women's charities and organizations promoting gender equality
Women's charities and other organizations promoting equality are invested in policies that advance gender equality. Our research will help them better understand why and how policies that are not specifically aimed at women such as minimum wage legislation or trade-union legislation affect the gender pay gap. They will also be interested in the links between job mobility and pay progression and whether helping women be more mobile is likely to help them obtain better pay.
5) HR Departments and professionals
By highlighting how women with family responsibilities may be disadvantaged in climbing the career ladder not by their lower productivity but by their lower bargaining power, our results will be useful to HR professionals and firm HR departments. They will also be interested in learning the extent to which women are prevented from being mobile by their family responsibilities and how firm policies may help in this respect.
6) Employer organizations
The CBI is publicly committed to supporting gender pay equality and to eliminating the gender pay gap. It (and other employer organizations) will be interested in knowing how they can support their members achieve these goals.
7) The general public
The gender pay gap is an issue of interest to the general public as demonstrated by the strong media focus on the results of the annual gender pay gap reporting mandated by the government in 2017. Findings from this research programme will help women and the general public better understand why women end up being paid less. They will highlight the role of factors other than individual productivity and in particular, the role of job mobility and family responsibilities in driving non-equal pay.

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