Equal Pay – Let’s not fall into the gender pay trap…

For some, Equal Pay Day marks the annual ‘free labor of women’, for others it is an ‘ideologically motivated lie’ – the truth is even more complicated. This article highlights the uselessness of many of the statistics surrounding ‘equal pay’ and explains why a focus on gender falls short when it comes to pay equity. Instead, we would do well to place more emphasis on actual, individual performance.

Is a focus on gender even justified?

First of all, let’s take a look at the terminology. Equal Pay Day (EPD) is generally understood as an international day of action for equal pay between women and men. The day is intended to draw attention to the so-called ‘gender pay gap’ (GPG), i.e. the gender-specific wage gap between the average gross hourly wage of women and men. The EPD is celebrated individually in each country, symbolically on the day up to which women would work for free if they were paid the same amount as men across society as a whole. In Switzerland, the EPD falls on February 20. So much for the definition.

Let us now turn to the methodology used to measure and prove the GPG. Two statistical approaches dominate here. Either the gross wages of women and men are compared by means of a regression analysis, without taking into account objective factors such as level of education, qualification, age, professional experience, overtime hours or the exercise of a management function. In the case of Switzerland, this led to the following result in 2018: Women earn on average a striking 19% less per hour than men [1].

Due to the fact that objective factors were neglected in the analysis this result is, however, questionable. Such a calculation literally compares apples with oranges. The other approach used concerns the calculation of the so-called ‘adjusted wage differential’, in which a distinction is made between ‘explained’ and ‘unexplained’ differences in pay. ‘Explained’ are those pay inequalities that exist due to objective reasons such as full-time/part-time employment or work experience. The ‘unexplained’ share refers to the pay gap that is potentially attributable to subjective inequality based on gender and amounted to 8.1% in Switzerland in 2018 – still a considerable, but nevertheless notably smaller figure than the result of the first calculation [1].

Although the first approach is now considered outdated, its results are regularly cited in the media to create politicized headlines (for example here) or to serve the often shouted slogan “equal pay for equal work.” But even the adjusted GPG omits important explanatory factors. For instance, comparisons are not made task-specifically but rather on an industry-wide basis, or projections are made nationwide despite very large regional differences in the cost of living. If all these relevant aspects were also included in the statistics, the explained difference would probably be even lower. A slightly different objection is that if such huge differences really existed despite equal qualifications, every profit-oriented company would actually have to hire only women, which definitely does not correspond to reality.

One real consequence of all this is a (media-driven) battle between the sexes, which unfortunately seems to lead nowhere except to diminished solidarity between men and women. A prime example of this is Switzerland’s Equality Act, which was amended in 2020. Since July of last year, the largest Swiss companies have had to monitor their wages for discrimination and fulfill their obligation to inform their employees about the findings. Apart from the fact that the law only obliges companies with more than 100 employees, which excludes a large part of Swiss SMEs, it does not provide for any sanctions [2]. Recently, the first evaluations of this federally mandated wage analysis were published – with surprising results for some. Only 5 percent of the analyzed companies do not meet the stipulated requirement, which on the one hand is below the granted tolerance threshold and on the other hand clearly contradicts the previous statistics of the federal government. Interestingly, the reactions of GPG critics to this result are either non-existent or skeptical [3]. One almost wants to say, because they do not fit their expectations or their world view…

The bureaucratic effort that is made today for the purpose of equal pay leads in the end not only to contradictory statistics and little real change. Moreover, the analyses also distort the representation of the actual economic situation of a non-negligible share of men who are below the average value of their gender, since male top earners statistically make all men appear to be better earners.

Focus should be on performance

The slogan “equal pay for equal work” quoted in the last section is therefore misleading, since the standard analytical methods used to examine gender pay inequality do not compare like with like. Another, even more important point in the discussion of equal pay concerns the concept of performance. Achievement can be divided into two components, the effort made and the result achieved within a given period of time. However, the first component is often equated with the second, or considered an equivalent substitute for the lack of the latter. An insistence on actually achieving results is sometimes even frowned upon as inappropriately exercised pressure to perform. And yet, in the end, it is the performance that matters. Let’s use an analogy to the world of sports: Recently, at the Summer Olympics in Tokyo, the on average smaller beach volleyball players from Japan played against the on average taller athletes from Germany. Although body size can definitely play a decisive role in this sport, neither the relative performance of the Japanese nor which team had trained x hours more, nor who had already participated five times more in the tournament counted for the final result, but only their performances in the match.

From the perspective of both fair and profit-oriented employers, the situation is similar. When it comes to salary, only the actual performance – measured by the contribution to a company’s income statement – of an employee counts or should count. Of course, this means that unchangeable attributes such as height, gender, ethnicity or social background should have absolutely no influence on a person’s salary. In radical economic terms, however, such a position would mean that even objective factors such as the type and duration of education would no longer have to be taken into account. Even if a completed degree means high education costs and temporary wage sacrifice, this qualification is sometimes not sufficient to outperform a naturally skilled or otherwise trained worker. If person A assembles twice as many parts in an hour on the assembly line as person B, then person A should also be paid more in the long run or be allowed better employment and advancement opportunities. Accordingly, fair hiring and compensation are ideally based on individually measurable and comparable performance – i.e., on the reason why a person is originally hired or should be hired. Thus, the well-known guiding principle can be rephrased as follows: Employers should not adhere to the slogan ‘equal pay for equal work’, but to ‘equal pay for equal performance‘. A deviation from this principle is therefore a genuine act of discrimination – including against women who perform measurably better and more consistently.

To return to the topic of equal pay in relation to gender, a marginal comment should be made here: If remuneration is to be based solely on a person’s contribution to economic success, the question arises at least as to why domestic work and child rearing in one’s own household/family, which is still mainly carried out by women, is not also considered to be work worthy of compensation. After all, it represents a significant pillar of our current economic and social system.  Or, if this work is ‘outsourced’ to a room attendant and a day care center, why are such important services are paid so low? We all tolerate this circumstance without a shred of bad conscience. This indicates that there would likely be no broad willingness to make a fair wage possible for people working in these sectors, for example by means of tax-financed subsidy payments. But more about this in the next section…

What counts as (equal) performance; or, The real problems

As alluded to, the principle of ‘equal pay for equal performance’ raises the question of what should actually count as equal – or rather equivalent – performance. Here, too, the comparison with the world of sports can be made: While the winner of the FedEx Cup golf tournament receives around 10 million US dollars in prize money, a ski jumper only gets one thousandth of this amount at the most for winning the competition. Both athletes perform exceptionally well (and entertain spectators), and yet the pay is set completely differently. Such gaps do indeed exist across the economy and cement specific sectors as high or low wage industries that often also correlate with gender. Of course, one can always appeal to women’s self-responsibility when it comes to career choice, à la ‘It’s your own fault if you choose a low-paying job that can be done part-time – no one is forced to start a family’. But we could also think about why so-called ‘female professions’ such as sales assistants, hairdressers or geriatric nurses are systematically paid less and whether this is fair. If the pandemic has shown us anything, it is that many of these professions are ‘essential’ for the functioning of our society. The prime case is nursing staff, who despite unpleasant working hours, stress and indispensable service provision earn much less than, for example, construction foremen. The real problem is therefore the wage inequality across sectors, which widens the gap between the rich and the poor and does not pay ‘equal’ performance equally.

For the individual, the consequences of choosing an occupation in the low-wage segment mean not only lower pay but also fewer opportunities for further training and promotion, as well as a lower pension in old age. But, to return to the GPG aspect: Discrimination can occur not only on the basis of gender, but along many lines, such as skin color, appearance, age, disability or religion. So why this focus on gender when solidarity and alliances can be formed much more broadly? On this point, one critic of the EPD suggests, “What would be really interesting would be a ‘social’ ‘Equal Pay Day’. […] The gender issue hides wealth and hides social inequality. The gender pay gap is […] a gender trap – a ‘gender pay trap’, so to speak” [4].

In summary, we as a society need to ask ourselves whether we are willing to accept the structural reasons for wage inequality as an unchangeable fact or whether we are willing to do our part to change the status quo. In terms of gender, one commentator summarizes that having children is not part of the plan in today’s economic model, as it often means being locked into a traditional role distribution and lower employment opportunities for women [5]. Here, a rethinking and a restructuring on different levels – individuals, large corporations, politicians – seems to be called for.

The examples of gastronomy and care can also be used to illustrate that social change requires everyone to take responsibility. Are we willing, provided we can afford it, to pay more for consumption in a restaurant or even higher health insurance contributions so that the waitress and the nurse are paid ‘more equally’ for their services, or do we prefer to be stingy so that we can keep more for ourselves? Do we elect policymakers who will advocate for better minimum wages in care, or do we think we’ve contributed enough by clapping from our home balcony? Or how about the next time you pick up your kid from daycare, you tip the caregiver a few hundreds to show that you appreciate their efforts and are aware of the wage disparities in the care sector?

At JANZZ, we are not satisfied with a couple of heart emojis posted on social media as extra pay for caregivers, but develop evidence-based solutions and have been using them successfully since 2010. Our job and skill matching solutions are fair and non-discriminatory and deliver completely unbiased results according to the OECD principles on AI. This ensures that the best performing candidates in all individual criteria receive the best match – regardless of employment status or other irrelevant characteristics such as origin, age, BMI or gender. This is one of the many reasons why we are a trusted partner for an ever-growing number of Public Employment Services (PES) around the world.

Want to take that first step to change the status quo and contribute to a more equitable labor market for all? Then contact us at info@janzz.technology or visit our product page for PES.

 

 

[1] Eidgenössisches Büro für die Gleichstellung von Mann und Frau. Plattform Lohngerechtigkeit. URL: https://www.ebg.admin.ch/ebg/de/home/themen/arbeit/lohngleichheit.html

[2] Tagesanzeiger. Ab Juli müssen Unternehmen die Lohngleichheit kontrollieren. URL: https://www.tagesanzeiger.ch/ab-juli-muessen-unternehmen-die-lohngleichheit-kontrollieren-711426685692

[3] Steck, Albert. Frauen werden kaum diskriminiert, wie die neue Überprüfung der Löhne zeigt. URL: https://nzzas.nzz.ch/wirtschaft/loehne-in-der-schweiz-frauen-werden-kaum-diskriminiert-ld.1640462

[4] Moser, Thomas. 2017. Ten Years Gender Pay Gap-Mistake – Ein Irrtum wird zehn Jahre alt. URL: https://www.heise.de/tp/features/Ten-Years-Gender-Pay-Gap-Mistake-Ein-Irrtum-wird-zehn-Jahre-alt-3652060.html?seite=all

[5] Zufferey, Marcel. Die Mär von den unfairen Frauenlöhnen. URL: https://blog.tagesanzeiger.ch/mamablog/index.php/10791/die-mar-von-den-unfairen-frauenlohnen/

Global Labor Market News: Despite strong vacancy recovery, long-term unemployment remains

A new analysis of online job postings from the UK confirms that there has been a strong recovery of job vacancy rates this summer, well above the same period two years ago. The data, coming from one of the largest online job search engines in the UK shows:

  • New vacancies are mainly in IT, construction, trades or warehousing and logistics with 330,000 in total, nearly one-third of all vacancies.
  • The numbers of vacancies in healthcare, nursing and social work are reaching 130,000.
  • The numbers of vacancies in both sales and hospitality are nearly 75,000.

Despite the increasing job advertisements, what raised more concerns, however, is that the unemployment rate remains high. The long-term unemployment rate keeps rising at the fastest rate in a decade and the unemployment claims are still double the size compared to the time before the pandemic.

Not only in the UK, the same trend can also be seen in many other rich economies. A report released by the OECD in July warned that rich countries may face sustained growth in long-term unemployment. Their data shows, by the end of 2020, the number of people in OECD countries who have been unemployed for more than six months is 60% higher than the pre-pandemic level. This is because the low-skilled workers who are most likely to lose their jobs in the early stages of the crisis do not have the skills needed to enter the most extensively recruited industries.

To deal with the situation, governments are suggested to develop more targeted employment retention programs to ensure that they do not support businesses that are unlikely to survive in the open market. Meanwhile, they should better cooperate with employers to support reskilling and job matching.