Addressing the gender pay gap: employer methods

1. The Gender Pay Gap: Policy and Literature Review

The Structure of this Report

This report is structured as follows. Chapter 1 provides an overview of the gender pay gap in Scotland and outlines the current policy context and relevant research. Chapter 2 outlines this report's methodology and lists the participating employers. Chapter 3 considers the responses of business to pay gap reporting requirements discusses the situation of small businesses. Chapter 4 outlines the strategies adopted by employers to promote gender equality and address the pay gap and Chapter 5 reviews the benefits and challenges associated with these efforts. At the end of each chapter, there is a short overview of the relevant policy dimensions of these findings, largely with reference to the Scottish Government's recently published Gender Pay Gap Action Plan.

Definitions and Extent of the Gender Pay Gap

The Extent of the Gender Pay Gap in Scotland.

The gender pay gap refers to the difference in average hourly earnings between men and women, expressed as a percentage of men's average hourly earnings. The gender pay gap can be calculated as the difference in either the mean or median hourly earnings. Pay gaps may be calculated by comparing full-time workers, part-time workers or all workers.

In 2018, the median gender pay gap for full-time workers in Scotland was 5.7%.^[1] This means that if the male and female populations of full-time workers were each lined up in order of their hourly pay, the man in the middle of the male population would be earning 5.7% more per hour than the woman in the middle of the female population.

The gap between all male and female employees, which compares all full and part-time workers, is 15%. This gap is higher than the full-time gap for two reasons. The first is the lower wages associated with part-time work. The ONS identifies the average hourly wage amongst part-time workers as £9.36, compared to £14.31 amongst full-time employees.^[2] The second is the difference in working patterns: 41% of women in Scotland work part-time compared to 11% of men.^[3] In this context, the median overall gender pay gap amongst part-time workers is -7.8%. This means that, in a context where there are more female part-time workers and these workers earn less overall, the median part-time female workers earns 7.8% more than the median part-time male worker.

The gender pay gap in Scotland is lower than in the UK, where it is 8.6% and 17.9% for full-time and all workers respectively.^[4] However, progress on reducing the gap has been slow and intermittent. The full-time and overall pay gaps have respectively decreased by 0.8 and 1.6 percentage points since 2011, with several year-on-year increases.^[5]

The Gender Pay Gap in Policy

The Scottish Government is committed to reducing the gender pay gap. In March 2019, it published a detailed Gender Pay Gap Action Plan with a wide range of policy measures.^[6] The Action Plan exists alongside a number of policy developments including, for example, legislation to increase gender representation on public boards, work to expand affordable early learning and childcare and policies to increase the number of women working in the STEM (Science, Technology, Engineering and Mathematics Sector)^[7]. As the next section details, a range of reporting requirements in relation to the gender pay gap have been introduced by the UK Government.

Reporting Requirements

A key part of the pay gap strategy in the UK and Scotland has been the development of reporting requirements. Following the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 (hereafter, 'the 2017 Act'), private sector companies with over 250 employees are required to produce figures describing their mean and median gender pay gap in hourly pay, mean and median bonus gender pay gap, the proportion of males and females receiving a bonus payment and the proportion of males and females in each pay quartile. At present, employers are not required to produce a narrative to explain their gender pay gap figures or an action plan containing measures to address it.

For public sector and non-departmental public bodies, the 2017 Act also requires that public authorities with at least 20 are required to publish gender pay gap information at two year intervals. In this context, the pay gap refers to the difference in average hourly rates of pay.

Perceptions of Business

Research from the Government Equalities Office (GEO) has indicated that only 23% of UK employers considered closing the gender pay gap a 'high priority', whereas 45% considered it a medium priority and 29% considered it a low or non-priority.^[8] Twenty-four percent of employers felt that reporting requirements had made reducing the gender pay gap a higher priority. In total, 34% of employers had developed a formal strategy to close the pay gap, while 30% intended to take no action and 33% intended to take action but had not yet developed plans. However, 56% of those with a gender pay gap of over 20% had developed a formalized plan to respond to it, as had 51% of employees with over 1, 000 employees and 42% of public sector organisations. Of the total, 16% had already implemented some or all of the actions set out in their strategy.^[9]

The Institute for Public Policy Research (IPPR) estimates that approximately 80% of employers subject to reporting requirements have considered requirements or taken further measures to narrow their gender pay gap.^[10] 81% of the businesses in this research agreed that reporting requirements were likely to encourage further action on the pay gap. However, research from Close the Gap, which looked at Scottish employers, found that only 5% had set targets to reduce the gap, while less than a third had published narratives explaining the causes of their gap and less than a fifth had set out actions. These actions were assessed by Close the Gap as being largely unmeasurable and unlikely to create change.^[11]

The available evidence on the strategies adopted by businesses is broadly consistent with the findings of this report. The GEO found that, in 2018, 87% of those employers that had developed plans were offering or promoting flexible working, developing shared parental leave policies, or making efforts to change their organisational culture and developing recruitment, promotion and mentoring schemes targeted towards women.^[12]

Similar results were noted by the IPPR. The study referred to above indicated that 46% of those taking action in response to the gender pay gap had adjusted recruitment practices, including changing the wording of job adverts and descriptions. In terms of what policies were emphasized, 20% of respondents regarded flexible working as important, while 33% were concerned with addressing the lack of gender diversity often found at senior levels.

Causes of the Gender Pay Gap

The causes of the Gender Pay Gap have been analysed in detail in the Analytical Annex accompanying the Gender Pay Gap Action Plan.^[13] Therefore, this section will provide a brief overview only.

Multiple studies have attempted to estimate the relative contributions of different factors to the gender pay using a statistical technique called decomposition. A detailed decomposition of the gender pay gap in the UK has been produced by the GEO, which identified labour market history, occupational segregation and industrial sector as the largest causes of the gender pay gap.^[14] It is also important to emphasise that the gender pay gap intersects with other barriers associated with race, disability, LBT (lesbian, bisexual and transgender) status and age, amongst others, as detailed in the Annex mentioned above..

As the Annex to the Action Plan details, two important components of the gap can be thought of as Job Selection and Job Progression. Job Selection here refers to the tendency for men and women to work in different sectors and in different occupations with male-dominated roles and sectors generally attracting higher pay.^[15] This may be partially a result of the presentation of these roles, as evidence has suggested that the language of adverts may subtly convey discriminatory bias in terms of the appropriateness of roles for women.^[16] Salary negotiations may also exert an influence, as discussed in the Analytical Annex. It has also been argued that determining initial pay on the basis of a worker's previous salary may embed existing inequalities by maintaining low wages for those already underpaid.^[17]

The influence of job progression, as distinct from job selection, refers to the tendency for women to experience more constraints than men to advancing in their careers, resulting in lower hourly wages overall. It is worth noting that the gender pay gap increases with age. According to UK level data, it increases from around 6% for all employees in the 22-29 age group to over 20% amongst those aged 40-49.^18] The same data indicates that the rate of part-time employment amongst women also increases, from 28% amongst the 22-29 age group to 41% amongst those aged 40-49.

Lack of job progression may partially be a result of the impact of childcare responsibilities on work participation. For instance, research by the Joseph Rowntree Foundation, published by the Institute of Fiscal Studies (IFS) suggests that, in addition to other factors, the greater propensity for women to be employed on a part-time basis following the birth of their first child contributes, in part, to the accumulation of the an increasing pay gap over time.^[19] While flexible working practices may offer more opportunities for those with caring responsibilities, research has suggested that only a small minority of well-paid jobs are advertised on a flexible basis, and that mothers have experienced negative consequences as a result of requesting flexible working arrangements.^[20]

Research into the causes of the pay gap often identifies a 'residual', i.e. a component of the gender pay gap which is not explained by a factor specifically listed in the decomposition process. In the GEO study, for example, 35% of the pay gap was unexplained by any of the variables included in the decomposition.^[21]

While it is impossible to know with certainty what is driving the residual, it is likely to include the effects of gender discrimination. It is difficult to precisely estimate either the extent of gendered discrimination within the workplace or the extent of its impacts, but numerous studies have demonstrated its presence in a range of contexts.^[22] Perceptions of such discrimination appear to be common^[23]. For example, in 2018, Investors in People found that 75% of respondents believed that gender discrimination existed in the workplace, while only 51% of employees felt that their organisation has a culture of encouraging gender equality.^[24] Research has also suggested that maternity-related discrimination is widespread. Research from the EHRC (Equality and Human Rights Commission) found that 77% of mothers said had experienced a negative or possibly discriminatory experience during pregnancy, maternity leave, and/or on return from maternity leave.^[25]

In what is likely to be an effort to reduce the effects of bias and discrimination, the EHRC have noted an increased use of unconscious bias training - training seeking to identify respondents' unconscious affinity biases as part of the process of challenging them - in the public and private sector. However, the GEO characterized the evidence on the effectiveness of unconscious bias training as 'mixed'.^[26] An assessment of the evidence on unconscious bias training published by the EHRC also found that, as a standalone measure, it is not ultimately an effective measure for advancing equality.^[27]

The Business Case for Gender Equality

As noted above, the imperative to close the gender pay gap is primarily an ethical one. Employers in particular have a responsibility not to implement practices which disadvantage women and reproduce gender inequalities. However, there is also mounting evidence that gender equality offers competitive advantages to businesses.^[28]

A large number of studies show that workforce diversity, particularly at the board level, is correlated positively with profitability, share price, productivity, revenue, and reduced turnover and recruitment costs^[29] - findings which have been replicated in multiple regions, including the U.S.^[30], Europe^[31] and several developing countries^[32]. Among other benefits, these studies show that diversity can motivate staff; provide a wider range of skills, experience, and perspectives; and more closely represent the views of stakeholders. However, studies also indicate that the relationship between workforce diversity and business performance may involve time lags and threshold effects^[33] and are sensitive to contextual factors^[34] .