Week 5 - Pay Inequalities

Week 5 – Pay Inequalities Pay, in economic terms – the “wage-effort” bargain, to reward or compensate a worker for their time and effort. Theorists argue that pay is and should be the result of market forces so that pay reflects the productive contribution of each worker, or their value to the firm. Conceptualising pay: Implicit theories in pay setting (Figart et al, 2002) - Pay as price: this reflects individual contributions and market supply/demand. Neoclassical economists – labour should equal the marginal value of the product. This assumes that workers have perfect knowledge of their own value and would keep looking for a job until they find the right price. Gender inequalities were seen as legitimate due to differences in human capital between men and women. All inequalities, including racial, were seen as an issue of human capital. But, now the education gap between men and women has diminished – why does the gender pay gap still exist? - Pay as living: what a person needs to live or live a comfortable life. Means that pay has also been set based on what a person needs in order to live and support their families, but pay also reflects social values and norms. Male breadwinner wages came to be defended in many quarters such as the catholic church and trade unions in early 20th century. - Pay as a social practice: pay prevailing the natural social order. Pay is linked to wider social processes, reflects the prevailing social order. Equal pay legislation reflected recognition that women also needed to support their families through their work and wages, which led to further change as women were better able to support their families. - Pay as a political process: pay would be the negotiated outcome of a relationship with worker and employers. Institutionalists see markets as imperfect institutions in which differences in power and in access to information affects pay levels. Pay should be negotiated outcome of the contested (unequal) employment relationship. Workers have less power than employers but their bargaining power depends on their skills, their knowledge of the market (i.e. how much employers can pay), their options/commitment constraints, whether they have social protection etc. For example, migrant workers are unlikely to know a lot about the pay in the market, so would suffer. How does this help understanding pay inequalities? - Wage inequalities do not simply reflect differences in workers’ skills and productivity. They are result of complex contextual and social forces, including discrimination. Resolving these issues need to focus on workers as well as employers’ practices and societal institutions Overall pay inequality rose in the UK between 1979 and 2010. Lindley and Machin 92013) examined the difference in pay between workers at the top end and those at the lower end of wage distribution. They noticed that the patterns of the growth of this difference varied between two distinct periods: - 1979-1997: conservative government period where wage differentials increased more and affects the whole distribution. 1997-2010: labour government period where growth of wage inequality was less pronounced and affected mostly the top half of the distribution. Lindley and Machin (2013) explained this increase with changes in patterns of skills demand and supply – the supply of graduates increased considerably, but demand still outstripped supply, which can contribute to explain the increase of the graduate pay premium. Furthermore, there was a skill-biased technological change – evidence shows faster shifts in technological advanced industries in terms of the increased demand for graduates. This means that demand for lesser skills jobs decreased and as a result so did the pay. Thatcher’s government had a significant impact on the reduction of trade unions, this coincided with the strong increase in wage inequalities. Both the UK and USA have seen significant increases in the wages of their top 1%, with very little change in their skill set – arguing concerns about the fairness of their rewards. Hutton (2011) argued that even when an organisation is successful, this success derives from the collective efforts of the whole workforce, not just from its CEO and so pay should reflect this. Low Pay Applebaum and Schmitt (2009) studied low pay in wealthy countries and found considerable variations in the share of low pay. They found that these differences were due to a great extent to business strategies of firms and the institutions that regulate the labour market. Low pay – earnings below two-thirds of the national median gross hourly earnings from country to country. UK National Living Wage - £8.72 (March 2021). The Gender Pay Gap Defined as the difference in the average pay of men and women. Is the gender pay gap closing? Over the last 40 years, the gap has narrowed but not closed, and not at the speed you would expect, especially as women have closed the education gap. In the UK, the gender pay gap was stagnant between 2014 and 2017, and then began to actually rise. The most common explanations for the gender pay gap: - Lower price for female labour due to lower attributes or lower return to attributes Lower presumed income needs compared with male bread winners General discrimination General segregation - Undervaluation of women’s work Women’s unequal burden of family responsibilities But what explains the gaps persistence? Rubery and Grimshaw (2015) – it used to be explained through gender differences in education and work experience. However, as education gender gap closed and women reduced career breaks, the gender pay gap didn’t close. Therefore, the gap became explained by women choosing the “wrong” subjects and the “wrong” kinds of work experience (Part-time). Skill bias favours engineering and science typically held by men. Economists pay less attention to demand side factors – women’s limited options and employers’ exploitation of these constraints to pay lower wages. Research indicates differences between organisations/occupations. Sociological explanations include wages being based on presumed need – family wages for male bread winners, pin money for women. Wage inequalities also reflect unequal family responsibilities, welfare support has improved women’s LM participation in more equal terms. Institutional approaches explain the persistent gap is due to wages being seen as the outcome of power relations between labour market actors. Trade unions in the past contributed to gender inequalities but now committed to equality. But trade union decline is the moving target here, women are “swimming against the tide” as overall inequality increases. - - Equal Pay Act 1970: legislation to create equality in pay. This resulted from strikes by women workers protesting against unequal at T&C in Ford Dagenham Plant. This required a female worker identifying a male worker of the same “value” and demand to be paid the same. This means that employers didn’t have to do anything unless they were “caught”. It has now been incorporated into the 2010 Equality Act – still requires women to identify a male comparator in a similar job or job of equal value. This can be difficult due to lack of transparency and pay secrecy. Other developments relating to equal pay legislation and their impact: - Mandatory gender pay gap reporting for large firms (250+): this requirement was suspended during COVID as well as no requirement to act upon the gender pay gap. BBC was required to publish salaries of high paid employees, led to one female employee winning an equal pay claim. Trends and Prospects for Pay Equality: - Cuts in jobs and pay in public sector during austerity. Privatisation and subcontracting of public services. Nurses offered 1% pay rise recently. Organisational perspectives explain the gap by saying that inequalities relate to grading of jobs, pays systems and promotion opportunities and practices. Job evaluations have been used to promote pay equality (equal value) between female and male but not bias-free. How can it be addressed? Rubery and Koukiadaki (2017) propose some actions that can be taken in a number of areas. Many of these would have a positive impact, not just on women but also to reduce overall inequality. Important areas of action includes: - Legal regulations o Minimum wage legislation – limits can be set too low and may lack enforcement, not always inclusive etc. o Gender specific legislation (can also apply to race) – equal pay for equal work and equal pay for work of equal value. The limitation here is that most countries focus on prohibition of discrimination rather than legal duty to promote equality. Ideally, legislation should require employers to be proactive to demonstrate efforts to promote equality, not just forbid discrimination. o Pay transparency – some countries require employers to report on gender pay gaps (UK) and to demonstrate efforts to reduce it. Trade unions historically contributed to gender inequalities e.g. bargaining for “breadwinner wages”. However, more recently, trade unions have had a positive effect on gender and overall inequality: - Unionised workplaces tender to have smaller gender pay differences. UK trade unions have campaigned for gender inequality and inclusive systems of bargaining tend to result in lower gender pay gaps at the national level (e.g. Sweden). Unfortunately, most private employers are not unionised and UK trade unions have lost much of their power – so collective bargaining is not very inclusive. Welfare support includes paid and shared family leave, opportunities for flexible working, affordable childcare, social protection against job risks etc. Voluntary actions can include many things but on of the most important has been Living Wage campaigns in the UK and US. The Living Wage Campaign – UK (2002): provide a minimum acceptable standard of living which equated to £10.85/hour in London and £9.5/hour outside of London. This calculation was based on the cost of living on a basket of household goods and services, payment of it was entirely voluntary and 7000 employers have signed up to pay the living wage. As a result, over 250,000 employees have received a pay rise as a result of the Living Wage campaign.