Closing the Pay Gap: The Earning Power of Women

David Cameron has announced a compulsory gender pay gap disclosure by all big businesses, but how far will it really go in capitalising on the earning power of women?

The earning power of women

We’ve been saying it for a while now: women are the largest emerging market in the world. Research estimates that in the next five years, the global income of women will grow from $13 trillion to $18 trillion, almost twice the growth in GDP expected from China and India combined.

Women also own about a third of all businesses in the world, with nearly half of them in developing markets. However, they face more impediments in growing these businesses than men, with only a 50% chance of success. But if the companies they founded were to grow at the same pace as men’s, women would create millions of jobs: 15 million in the US, 74 million in China, and 1.9 million in France.

British Education Secretary and Equalities Minister, Nicky Morgan, comments: “Supporting women to fulfil their potential could increase the size of the [UK] economy by 35% (£600 billion), a figure that would clear a third of the national debt”. There is a clear incentive in helping women succeed.

David Cameron announces publication of gender pay gap figures

In effort to capitalise on this potential, British Prime Minister David Cameron has set his sights on equal pay, announcing plans to force large companies (of over 250 employees) to publish the difference in earnings between male and female employees: “That will cast sunlight on the discrepancies and create the pressure we need for change, driving women’s wages up”.

In the UK women are paid on average roughly 20% less than men, earning £9.71 per hour to a man’s £12.03, or around 80p for every £1. Cameron vowed to end that statistic “in a generation”.

A consultation will be launched on exactly what information should be published, where, and how often, but early suggestions include publishing the median hourly rate for male and female staff, every one, two, or three years, and dividing pay levels into types of job or pay grade.

How far does it go in capitalising on the earning power of women?

But while this is certainly a symbolic move, how far does it really go in capitalising on the earning power of women?

Businesses affected, who forced the previous coalition government into an initial compromise version allowing a voluntary approach, say not very far. CBI, the industry group representing major businesses, argues that the data could be misleading, promoting “myths and confusion”, while also being costly yet ineffective: “Quotas, rules and placing extra costs on business are not the way to ensure diversity in the workplace”.

A superficial approach

Indeed, it seems a superficial approach: pay gap data is notoriously difficult to assess. The Centre for Social Investigation (CSI), which researches areas of social disadvantage, explains: “The gender pay gap is rather complicated to measure. Many more women than men, for example, work part-time in order to manage child-care or other reasons. There are more women than men in the public sector and particularly in ‘caring’ professions which are low-paid, while there are more men than women in ‘revenue-generating’ professions.” Specifically, 88% of those working in science, technology, and engineering are men, with only 6.7% of engineers being women. CSI also highlights that this most recent narrowing of the pay gap, following a decade of stagnation in the 1990s, may well be a result of male wages dropping during and following the financial crisis, rather than a true narrowing of the gap.

After accounting for level of economic activity, type of occupation, experience, education, and work intensity, CSI reports that the UK still has the fifth highest unexplained pay gap among the 30 developed nations compared. But driving women’s wages up is not the root of the problem. Yes, a pay gap disclosure will certainly cast sunlight on these discrepancies. But the only way to help women truly succeed, and therefore capitalise on their potential, will be by reworking female stereotypes, getting many more women into male dominated industries, and seeing them at the top of the career ladder.

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