5 Equal Pay
Learning Objectives
After completing this chapter, the reader will:
• understand the reasons why women still lag behind men in terms of pay.
• understand the differences in the gender gap in pay in various countries.
• understand the differences among equal pay legislation, comparable worth legislation, and pay for performance compensation.
• understand the relationship between equal pay and negotiation skills.
Introduction: the Pay Gap
A report by the American Association of University Women (AAUW) showed that, just one year out of college, women working full-time earn 80% of what their male colleagues earn, when they work in the same field (American Association of University Women, 2007). Ten years after graduation, the pay gap widens: by that point, women are earning 69% of what their male colleagues earn. Even after controlling for hours, occupation, parenthood, and other factors known to affect earnings, one-quarter of the pay gap remains unexplained. In addition, the AAUW report showed that college-educated men have more authority in the workplace than do their female counterparts and are more apt to be involved in setting employee pay.
Over the course of her life, a young woman graduating from high school will make $700,000 less than a young man graduating from high school. A young woman graduating from college will earn on average $1.2 million less compared to a man with the same college degree. The difference increases as women and men gain further credentials; over the course of her life, a woman with an MBA, law degree, or medical degree can expect to earn $2 million less than a man receiving the same degree at the same time (Women’s Policy Inc., 2007). In fact, on average, in the US, women with master’s degrees still make less than men with bachelor’s degrees (US Census Bureau, 2005).
Although over time women have made progress in reducing salary differences, these statistics show that they still lag behind men (see Figure 5.1). This is true at every level of the wage hierarchy, and within races. For example, in the US, Asian women earn 81% of what Asian men make; white women earn 80% of what white males earn; African American women earn 89% of what African American males make; and Hispanic women earn 88% of what Hispanic males earn (US Bureau of Labor Statistics, 2007). The wage gap in the US increases as women grow older, as they earn more degrees, and as they gain more experience. Between the ages of 16 and 24, women earn 95% of what men earn; between 25 and 34, women earn 88% of what men earn; but between the ages of 45 and 64, women earn 73% of what men earn. In all of these comparisons, full-time working men of the same age group were measured against full-time working women of the same age group (US Bureau of Labor Statistics, 2007).
[Insert Figure 5.1 here]
[caption]Figure 5.1 Median Usual Weekly Earnings of Full-Time-Wage and Salary Workers in Constant (2007) Dollars by Sex, 1979–2007 Annual Averages (source: US Bureau of Labor Statistics. (2007). Highlights of Women’s Earnings in 2006. US Department of Labor, September, p. 4).
Women earn less than men in many areas, from service-related jobs to management and professional occupations. The gap becomes greater in professions that pay more and in professions or jobs that are stereotyped as “male,” such as higher-level management roles and production, transportation, and materials-moving jobs. The gap between women and men is lowest in traditionally female occupations such as administrative support – secretaries, typists, receptionists. Technological change sometimes results in men entering traditionally female occupations as their traditional male occupations become obsolete. Men entering such traditionally female job classifications often have to accept the prevailing wage, which is determined for a largely female population. If they did demand more, they simply wouldn’t be hired, because women are available for these jobs at the prevailing, lower wage rate.
Table 5.1 Median Weekly Earnings by Occupation
Occupation / Women ($) / Men ($) / Pay Gap ($)Services / 390 / 484 / 94
Production, transportation, materials moving / 426 / 601 / 175
Natural resources, construction, maintenance / 518 / 660 / 142
Administrative support / 557 / 619 / 62
Sales and related occupations / 467 / 761 / 294
Management, profession and related / 840 / 1,154 / 314
Source: US Bureau of Labor Statistics, Highlights of Women’s Earnings, September 2007, extracted from pages 11–14.
The Rate of Progress
In the US, in spite of the EEOC and the many bills in state and federal government that try to remedy inequalities, the progress toward equal pay between men and women has been slow. The data in Figure 5.2 show that, between 1960 and 1965, the pay increase for women was barely noticeable, most likely due to the fact that the Equal Pay Legislation was launched in 1964 and the EEOC founded shortly thereafter. From 1965 to 1970, women did not make any progress relative to men, and again from 1970 to 1975 the pay gap remained unchanged. In 20 years since the Equal Pay Act was passed, women’s earnings advanced by only 4.6% relative to men’s earnings. Even from 2000 to 2005, when much progress might have been expected due to media attention to inequalities and women’s advances in education, there was only modest improvement: a 3.7% gain over five years. Clearly, the Equal Pay Act has only had a marginal effect on the gap in earnings between men and women.
A report in 2002 by the US General Accounting Office (GAO) noted that women’s pay relative to men’s in certain industries had declined from 1995 to 2000, and in other industries had increased (Dingell & Maloney, 2002). In seven out of 10 industries, the pay gap had widened between male and female managers. For example, in the entertainment and recreation services industries women earned 83% of male managers’ pay in 1995 and 62% in 2000. In communications, female managers’ pay fell compared to males’ pay from 86% to 73%; in the finance, insurance, and real-estate sectors, female managers’ pay fell from 76% to 68%; and in professional medical services, women’s pay went from 90% to 88%. One reason for the pay decline in these areas could be due to the use of automation in these job categories and a general trend toward de-skilling in these industries. The GAO also found that in only one of the industries, medical services, women accounted for a greater number of managers than men. This is the only industry studied where management and administrative jobs are lower status than professional, non-managerial jobs. Furthermore, in only five out of the 10 industries did women hold a share of management jobs in proportion to their share in the industry. In public administration, hospital services, and educational services, pay rates for women relative to men went up slightly between 1995 and 2000.
[Insert Figure 5.2 here]
[caption]Figure 5.2 The Wage Gap Over Time (source: US Census Bureau, 2006).
The Global Case for Equal Pay
As in the US, a pay gap between men and women exists in all of the European Union countries. Although in the United Kingdom women have a large percentage of managerial jobs compared with other EU countries, there is still a pay gap of 21.1% between men and women. Austria and the Netherlands have an even greater earnings gap between men and women; Austria’s pay gap is 25.5% and in the Netherlands it is 23.6%. The Scandinavian countries do marginally better than Central European countries: Denmark’s equal pay gap is 17.7%, Sweden’s is 17.9%, and Finland’s is 20% (Eurostat, 2009). In a comparative study of 40 countries, more politically left-leaning governments, such as those in Scandinavian countries, reduced the pay gap more than politically right-leaning governments (Polachek & Xiang, 2006). Such governments are predisposed to enact legislation about equal pay because they are more committed to equalitarian outcomes, while right-leaning governments generally do not favor government intervention in matters of pay.
In Eastern and Central Europe, women’s wages are at least 20% lower than men’s rates of pay. In economies that have moved from central planning to market capitalism, such as Russia and the Czech Republic, the wage gap has widened since 1989. During the period of state central planning and communist rule, the pay gap between men’s and women’s wages was lower than it is today. Prior to 1989, trade unions were very strong in the former Czechoslovakia, while today, fewer than 21% belong to unions (International Trade Union Confederation, 2008). This lack of union activity is most likely one reason for the increase in the pay gap, which in 2007 was 23.6% (Eurostat, 2009). The pay gap in formerly communist countries is particularly disconcerting since, according to the traditional free-market view, market forces will be the best mechanism for creating a fair labor market. The widening of the wage gap in countries with transition economies is of special concern against the backdrop of the steep decline in real wages, which makes women who are often trying to support families vulnerable to the risk of poverty (Stepson, 2000). Moreover, in the Czech Republic and Lithuania, the wage gap is largest for the most well-educated women; in Lithuania, female social workers earn 50% of what their male counterparts earn. The overall wage gap in European economies tends to be greater in the private sector than in the public sector, and women in transition economies have been affected more by manufacturing plant closings and economic recessions (Stepson, 2000).
The pay gap statistics represented in Figure 5.3 do not take into account job classification – the statistics are undoubtedly influenced by both lower, middle, and high level job classifications, and the variation in pay for women and men in different industries.
Many managerial jobs in EU countries include such fringe benefits as a company car, cell telephones, retirement benefits, and expense accounts. When women are segregated into lower-level jobs, they miss out on both additional salary and these types of fringe benefits or “perks.” Data on pay differences among managers in the EU countries indicates that earnings gaps are the widest the more senior the position. Furthermore, the gender pay gap increases with age, education, and years of service. In the 50–59 age group, the gap is more than 30% compared with 7% in the under-30 age group. Those women with higher education earn 30% less than men, whereas those with lower-level secondary education earn 13% less than men. The wage gap increases as one gains more experience; it is as high as 32% for women workers with more than 30 years of experience (Eurostat, 2009).
[Insert Figure 5.3 here]
[caption]Figure 5.3 Gender Pay Gap in EU Countries (source: Eurostat, http://epp.eurostat.ec.europa.eu/tgm).
Note
The unadjusted Gender Pay Gap (GPG) represents the difference between average gross hourly earnings of male paid employees and of female paid employees as a percentage of average gross hourly earnings of male paid employees. The population consists of all paid employees in enterprises with 10 or more employees.
Differences in Labor Statistics across Countries
The differences in labor statistics in European countries can be influenced by any number of factors. Each European country has different rules for how wage statistics are monitored; for example, in Finland any company with 30 or more employees must evaluate pay equity in a yearly workplace equality plan, while in Germany wage statistics are required if the company has five or more employees. In France, gender equity statistics must be reported to work councils or shop stewards in companies that have 50 or more employees. Companies are required to have annual negotiations on gender equity. In Denmark, companies must compile wage statistics for 10 or more employees. In Switzerland, if the pay gap between men and women is higher than 5% in any organization or company, the institution is required to conduct further analysis and take corrective action if needed (Harriman & Holm, 2007). In general, the monitoring and reporting activity has positively influenced gender equity; those countries with stricter reporting and monitoring regulations have smaller pay gaps between men and women.
In addition to monitoring activity, signing on to international conventions in favor of equal pay measures makes a difference. The International Labor Organization (ILO) held a session on gender equality in which over 100 government members voted to endorse the concept of equal remuneration between men and women for work of equal value (2009). Weichselbaumer and Winter-Ebmer compared 67 countries and found that those nations that had ratified such international conventions supporting equal pay had a significant positive effect on narrowing the pay gap in their countries (2002).
The ILO, as well as researchers, cites several reasons for the differences in wage rates among European countries. When a pay gap is small, it is often achieved by only a small number of well-educated women at the top of the labor market. In other cases, progress has been made in low-level occupations such as clerical work, where the gap may be only 3–8%. However, the gap remains highest for female professionals. The gender gap in earnings may be larger in European countries where there is more overall inequality (Blau & Kahn, 2000, 2007). For example, in the United Kingdom the dispersion in the data gives more room for gender inequalities, whereas in Portugal, for example, female employment is probably lower overall and fewer women are pulling down the distribution. The salary distribution is most likely more compressed in Portugal and therefore there is less of a gap in earnings between men and women. Blau and Kahn found that those countries with more compressed male wage structures (a narrower distribution of male earnings) were associated with lower pay gaps. Finally, collective bargaining by unions has been shown to have an overall positive impact by reducing the gender pay gap.