When the WGEA released Australia’s gender pay gap on February 27, phrases like “inequality”, “women deserve more”, and “I can’t believe we still get paid less” almost immediately bubbled into mainstream media. But there’s been a clear oversight; the gender pay gap as defined by WGEA is the ‘difference in average earnings between men and women…across a nation, industry or within an organisation’. Yet for a brief moment, the majority of the Australian populous had believed that women were getting paid less for the same job - that is until mainstream media started correcting themselves. Albeit the misconception of what a ‘gender pay gap’ is wasn’t entirely wrong.
It was in the early 1900s when women in Australia started advocating for equal pay for the same job. That is, if you earned $5/hour as a flight attendant as a male, then getting paid $3/hour as a female doesn’t make sense and they deserve $5/hour as well. Back then, that had been considered the ‘gender pay gap’. Fast forward 100 years, when the Fair Work Act 2009 passed, it enforced employees to pay women and men equally for ‘work of equal or comparable value’. The definition of a ‘gender pay gap’ back then no longer applies today. We’ve solved the problem. In fact, now we’re advocating for equity in the sense that if males at Jetstar got paid 53.5% more on average than females, it’s probably because there are more male pilots than male flight attendants compared to female pilots and female flight attendants. And we all know pilots get paid significantly more on average than flight attendants. This begs the question, to close the gender pay gap at Jetstar, does it mean we need to get more females into pilot school? Likely not. A few of us may have kids, and as mothers, it’s an unreasonable ask.
In fact, 50 years before the Fair Work Act 2009, the initial promises granting equal wage for equal work ended up being more like, ‘if you can match the workload of traditional male jobs, we will grant women the right to the same pay’. Often, this had been laborious and avoided by women. It was a double standard - benchmarking the right to equal pay to jobs only men would prefer. On the other hand, in the public administration, the gender pay gap hits a low 0.1%. The reason lies in clear expectations, a clear 9-5 and great bang for buck. Women aren’t expected to meet the work hours men commit, because they all commit the same. If they saw you taking overtime in public administration, it’s more likely you’ll get frowned upon than a promotion. Even today, as the WGEA offers a +/-5% gender pay gap as the golden standard, it doesn’t mean it’s reasonable to ask women to change their preferences to match men. There’s a reason beyond bias why less women are promoted to directorial positions than men. Sometimes it’s characterised by preferences of their time value - less women are likely willing to work overtime than men in their mid-30’s when there are kids and families to look after. Essentially, we may be asking women to change their preferences from the flexibility of being a flight attendant to the strict timetable of being a pilot. And for what? To hit a -/+5% goal?
To answer the question: why the +/-5%, econometrics studies after controlling for work interruptions (childbirths), industries women dominate in, work experience, part-time employment etc., on average a 4-8% gender wage gap was unexplainable. While there are a range of potential reasons like women being poorer wage negotiators and different time value preferences, it may be reasonable to assume 4-8% isn’t something the government or firms can identify and close. As WGEA puts it, “This range allows for normal business fluctuations and employee movements, while signifying that an employer has a focus on identifying and addressing inequalities”.
We have explored the history and the intricacies of the meaning of the gender pay gap, but what would reducing the gap actually look like? Although there seems to be unanimous support towards reducing the gap, the impact of it might not always be so positive. What would happen to the men’s income? What would happen to the firm’s productivity and profitability if the wage changes?
These questions of what might happen to Australia’s gender pay gap in the coming years might be answered by countries that have already been publishing a similar measure. For instance, Denmark has been publishing the gender pay gap data since 2006 and the country has reduced its median wage gap from 10.2% in 2005 to 5.8% in 2022. The UK has also been making the pay gap publicly available since 2017 and has recorded a decline in the figure from 16.5% in 2017 to 14.5% in 2022. Although this is an overall trend across OECD countries including Australia, econometric analysis shows that there is, in fact, a statistical significance between the policy change and the gap reduction.
In general, publishing the gender pay gap data can promote awareness and engagement with the topic, as well as actions towards improving the gap. Over time, pay transparency is associated with reduced gender pay gap between men and women, however, this comes at the cost of slower wage growth for male employees. In the WGEA data, PwC was praised for having a ‘healthy’ gender pay gap of 4%, yet this was after the PwC partners, predominantly male, committed to a 30% target income reduction and average income growth decreased from 9% to 4.5% in 2022-23. The tax leak scandal that significantly affected the firm financially made - ironically - a positive contribution towards narrowing their gender pay gap. The equilibrium wage model by Cullen and Pakzad-Hurson also supports that increasing transparency leads to lower wages, pertaining to the lower bargaining power of employees and employers avoiding costly wage renegotiation with other workers.
A reduction in average wage per employee should lead to higher profit for the firm, yet the effect on profitability is not statistically consistent, possibly due to the lower wage also leading to lower productivity. Cullen and Parkzad-Hurson describe that there is a difference in how workers’ productivity is impacted by the gender pay gap. While the horizontal difference in pay (workers learning that their peers get paid higher than themselves) leads to lower effort, output and retention, the effect of the vertical difference in pay (more senior workers getting paid more) leads to opposite effects. The empirical result from Card (2012) is also consistent with this idea of lower earners becoming dissatisfied with their wages and consequently becoming dissatisfied and less productive in their jobs. Hence, although pay transparency will likely reduce Australia’s gender pay gap in the coming years, firms may need to monitor its mixed impact on workers’ motivation, productivity and the firm’s profitability as a result.
Furthermore, there may be other ‘side-effects’ of pay transparency. For example, Bennedsen et. al, suggests that pay transparency encourages females to work for firms where the gender pay gap is lower and males to prefer firms that have a higher gender pay gap in favour of men. As such, disclosing the gender pay gap could potentially polarise the pay gaps of firms with already high or low gender pay gaps. Australia’s recent move towards publishing the gender pay gap data should be celebrated as an important step towards gender equality in the workplace, however, employers should understand that the progress may not be progress in all aspects of their business; depending on the case, it could be associated with lower wage, motivation and productivity.
The gender pay gap, contrary to traditional perspectives, is about the difference in median wages between men and women in an industry or a firm, not a single job or a role. It comes as a result of many factors including differences in time preferences, abilities to carry out tasks, and risk preferences. Applying this to Australia’s recent move towards disclosing the firm’s gender pay gap and examining the empirical results of pay transparency around the world, we may see Australia tread a similar pathway of closing the gender pay gap towards the +/-5%. However, the indirect impacts of pay transparency remain unclear, and firms could potentially experience lower wage growth for men, lower productivity and silo individuals into firms with favourable gender pay gaps. This brings back the question, “Does working towards the +/-5% gender pay gap make sense today?”. It certainly does to the extent we want to see women in higher-paying jobs, but it begs the question, can we do it without the tradeoffs that come with pay transparency?
