Notes from the Knowledge Library:Eliminating the Pay Gap is Long Overdue

Blog by Thomas Colquhoun-Alberts, Knowledge Manager- Opportunity Now & Race for Opportunity

With party conferences coming up, there appears to be political appetite to make the gender pay gap an election issue in 2015. The Liberal Democrats’ Pre-Manifesto policy document promises to bring into force section 78 of the Equality Act, compelling organisations with more than 250 employees to publish details annually about the pay of men and women they employ. The Labour Party is promising the same. Shelved when the coalition government took office, calls to enact Section 78 have grown louder recently. This attention is entirely appropriate and long overdue.

The pay gap is compelling because it provides a crisp measure of systemic inequality by quantifying discrimination in stark terms everyone can relate to. With everyone feeling the pinch of the Great Recession, it is intolerable that some of us, our colleagues, family and friends take home less pay for doing the same work simply on account of being a women, part of an ethnic minority, older, less abled, and so on.

A word on measurement: The median pay gap is the difference between women’s and men’s pay at the midpoint between highest and lowest pay of each gender. The average (mean) pay gap is the difference between the average pay received by women and men respectively. The median is often preferred to the mean or average because the mid-point between highest and lowest salaries is not affected by extreme values, for example very high wages paid  to a few high earners or large numbers of very low earners. Extreme values significantly affect the average. That said, using average measures conveys women’s experience of the labour market, since the highest earners tend to be men and very low earners tend to be women.

The most recent figures available put the median gender pay gap for all employees in the UK (full-time and part-time) at 19.7% in 2013, according to the UK Office for National Statistics. In other words, women are paid 80p for every £1 paid to male employees doing the same work. A closer look, however, shows considerable variation. Region, sector, age, ethnicity and whether one is a full-time or part-time employee are all significant factors. EHRC research published in 2011 reported the average gender pay gap across sectors of the economy, including Manufacturing (19.6%), Construction (13.5%), Information and Communications (20%), Financial Services and Insurance (38.6%), Professional, Scientific, and Technical Services (28.2%) and Health and Social Work (28.8%).The 19.3% national pay gap is a slight increase from 2012, and several points higher than the EU average. In a ranking of 27 OECD states by gender pay gap, the UK has the eighth largest inequality, and the fourth largest among European OECD state.

The time to grasp the challenge is long overdue

                                       

Although the gender pay gap has been a focus of media attention recently, it is not the only pay gap nor necessarily the largest. For example, the BAME pay gap In London was 24.4% in 2012 – more than double the gender pay gap during the same period, according to the Mayor’s annual Equality Report. The ethnicity pay gap affects ethnic minority men more than ethnic minority women, who tend to receive similar earnings to white women, according to EHRC research from 2009. Among BAME women, however, Black Africans and Bangladeshis are at greatest disadvantage.

With everyone living longer, we need to give attention to the age pay-gap too. Recent research shows the average pay gap widens to around 25% for all cohorts above 40 years.

Pay gaps vary by equality strand, region, occupation and sector. However, there can be no doubt about salience or impact. Consider trust. Opportunity Now’s ongoing Project 28-40 research found a significant difference between women’s and men’s confidence in wage equality at their organisation.

Female respondents answering question I believe there is equal pay in my organisation

Males respondents answering question' I believe there is equal pay in my organisation'

The implications of such significant disparities across all sectors for employee engagement and well-being, organisational culture, staff retention and productivity cannot be underestimated.

Other factors should motivate action on eliminating pay gaps. It is illegal and costly. Birmingham Council faces a £1 billion bill for settling years of pay discrimination. Companies and organisations are best advised to get their house in order sooner rather than later – it is a question of when not whether section 78 will come into effect. Delay and prevarication is the expensive option, in terms of fines and compensation as well as reputation, standing, competitiveness, and ultimately business sustainability.

Opportunity Now recommends ensuring a single reward structure for all employees as well as undertaking an equal pay audit and publishing the results, among many additional actions. Our 2013 benchmark analysis showed that organisations with the most women in management and senior management positions are more likely to have a single reward structure and publish their pay audit results. The 2014 analysis will be published in early December.

It hardly needs repeating that tackling and eliminating discrimination is also the right thing to do. It’s good for women, minorities, and others routinely underpaid. It is good for their financial security and the financial resilience of households. It weaves strength and sustainability into the social fabric.

Sometimes we think of the business case and the moral case as two clear and distinct rationales for promoting equality in the workplace. Yet research shows that organisations that recognise intersections and work productively with the tensions and contradictions tend to have better outcomes for their employees and their businesses.

The time to grasp the challenge is too long overdue.