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What’s really causing the gender pay gap?

What’s really causing the gender pay gap?

Amongst the excitement of this year’s International Women’s Day, Ministry for Women released a new report that takes an in-depth look at New Zealand’s gender pay gap. 

“Empirical evidence of the gender pay gap in New Zealand” takes a look at what lies behind this country’s 12% pay gap in an effort to find out how it can be reduced.

The first in-depth examination of the gap since 2003, the report identifies areas where New Zealand is making great strides—like educational attainment, higher participation of women in the labour market, and better representation in male-dominated industries—and areas where there’s definitely room for improvement. 

Why does it matter?

To foster a truly successful economy we need to address the systemic inequalities that have seen women continue to be paid an average 12% less than men—despite the 45 years since the passing of the Equal Pay Act in 1972.

The 2017 PwC Women in Work Index estimated that if New Zealand was to increase our female labour force participation to Sweden’s 80%, we would grow our GDP by $US10billion. That’s a huge slice of money that we’re missing out on by not actively addressing the inequalities that women face in the workplace.

About the gender pay gap, researcher Dr Jess Berentson-Shaw has said: “… [I]f we want an economic powerhouse of a country we need to deliver to people what they need to thrive, not just the same as everyone else. Not all women are getting what they need to thrive and it holds us all back.”

The majority of the pay gap is “unexplained”

One major finding of the report is that, at most, only of 35.6% of the gender pay gap could be attributed to personal, educational, household, regional, occupation, industry and other job characteristics.

This means that the vast majority of the gender pay gap—as much as 83.4% depending on the statistical model used—is unexplained by measurable differences in men’s and women’s employment. The report notes:

“The unexplained component may indicate that there are unobservable differences in the quality of characteristics between males and females, or differences in preferences for non-wage components of jobs across gender, or discrimination against females in the labour market.”

And so we move into the realm of speculation. We could attribute the gap to some women valuing flexible working over higher pay rates, to lower investment in or by women in job training—or just to good old fashioned discrimination.

Seeing the glass ceiling in full effect

The report found that the gender pay gap increases across wage distribution—at the same time that the unexplained proportion of the gap rises. That means women at the top end of the wage distribution are more likely to be paid less than their male peers for no obvious reason.

In fact, women in the 90th Quantile earned more than 20% less than their male counterparts—and almost 100% of this difference is unaccounted.

“… 80 per cent of the reason for the pay gap is described as "unexplained factors". That means bias against women, both conscious and unconscious. That means it's the attitudes and assumptions of women in the workplace. And when you have a workforce of men, particularly in senior roles, then it seems likely you're going to stick with the status quo. We can do better.” Minister for Women, Paula Bennett

Addressing the gap

“Pay equity is achievable and the recipe is not complex” Annika Streefland, General Manager of People and Culture at Contact Energy

Transparency and reporting

A key approach to achieving pay parity is to understand where inequities lie. To achieve this, organisations are encouraged to establish transparency and reporting measures around pay rates.  This could be either internally to the board or remuneration committee or externally in an annual report.

Simply viewing and understanding this data has a number of flow-on effects. It can help to:

  • flush out the anomalies in pay between the genders when working the same role
  • expose where unconscious bias has built these discrepancies
  • give organisations the opportunities to redress imbalances where they’re identified.

Transparency around pay grades can also give individual women an opportunity to benchmark their own pay rates, and negotiate from a point of understanding.

Putting pay equity on the agenda

For an organisation to achieve equal pay within their organisation, it needs to be on the agenda.

At our recent Champions for Change lunchtime event, Luke Sayers, CEO PwC Australia and member of Male Champions of Change, suggested that pay equity be introduced as a KPI for senior leaders—with bonuses attached to the achievement of pay equity within an organisation, in the same way that they would be awarded for meeting financial targets.

Real life stories

Global Women investment partner Contact Energy has moved their gender gap from 7% six years ago to 1.7% today, attributing this remaining gap to issues that fall outside gender—like employee tenure and experience.

In her recent NZ Herald piece, General Manager of People and Culture Annika Streefland attributes Contact’s success to factors that include:

  • regular scrutiny and analysis of pay data
  • reporting on this data: internally to a remuneration committee; externally through their annual report; and, in the future, as part of the Champions for Change reporting initiative
  • making sure to intervene where issues arise and, when necessary, appropriately influencing managers with the data to make changes to remuneration recommendations
  • establishing systems that remove gender from the decision process, and
  • working to educate their people on unconscious bias.

Finally, Simpson Grierson HR Director Jo Copeland outlines some practical steps her organisation has taken to create a 0% pay gap in her blog post “Smashing the pay gap in 3 easy steps”. These are:

  • increasing the salary of those on parental leave while they’re away
  • auditing pay practices and presenting these to the board, whether or not they ask for it, and
  • increasing the salaries of women co-workers if a better paid man is hired to join a team.

Keep pushing forward

There’s no doubt that New Zealand is making progress in addressing our 12% pay gap and addressing some of the factors that lie behind it.

However, it’s important that we don’t fall into complacency. To truly harness the benefits of a gender equal workforce for New Zealand—economically and socially—we need to make even bigger efforts to redress the gap and pay women and men equally.

Read the full report—and get an in depth look at the statistical models used—on the Ministry for Women website.