The Gender Pay Gap: How Much is it Worth to GDP?

Government must do all it can to close the gender pay gap. It appears that pay equality benefits not just women and families, but could also aid economic recovery in 2012 to make up a massive shortfall in Gross Domestic Product.

In a special report in the Economist on women’s rise in the workforce called “Closing the Gap”, the writer Barbara Beck explains:  “Perhaps surprisingly, there is little work on the macroeconomic effect of all the extra women who have entered the labour force over the past four decades, but McKinsey estimates that America’s GDP is now about 25% higher than it would have been without them.

Kevin Daly at Goldman Sachs, an investment bank, has calculated that eliminating the remaining gap between male and female employment rates could boost GDP in America by a total of 9%, in the euro zone by 13% and in Japan by as much as 16%.
Since not even the equality-conscious Nordics have yet managed to get rid of the employment gap altogether, it seems unlikely that gains on this scale will be realised in the foreseeable future, if ever, but there is certainly scope for improvement in some rich countries and even more in emerging markets. In the BRICs and other fast-growing developing countries the gap is already narrowing.”

On how the pay gap affects professional women, Beck continues: “Despite sheaves of equal-pay legislation, women get paid less than men for comparable work. That is partly because they often work in different fields, and many of them are part-timers with lower hourly rates. But even in identical jobs they earn slightly less than men from the beginning, and as time goes by the gap gets ever bigger.

Across the OECD (Organisation for Economic Co-Operation and Development) it now averages 18%. That is a lot less than what it was 40 years ago, but in recent years it has stopped narrowing.” I was dismayed to read this. Stopped narrowing? Surely improving economic growth is all the more reason to push for greater transparency around the pay gap.

Beck explains: “the most vexing gap between the sexes is in pay. Almost all rich countries have laws, passed mostly in the 1970s, that are meant to ensure equal pay for equal work, and the gap did narrow noticeably for a while when women first started to flood into the labour market. In America, for instance, it has halved since 1970, from 40% to 20%. But most of those gains came in the early years and have tailed off.

Across the OECD the difference in male and female median hourly earnings now averages around 18%, but with large and sometimes surprising variations.” For example there are greater gaps in male-dominated sectors such as financial services where a greater proportion of pay is discretionary and ‘performance’ related – and less of a gap in the public sector, which adheres to greater transparency in pay scales.

The Chartered Management Institute polled over 34,000 executives in the private sector, and found that the average pay gap between men and women doing the same job from February 2010 to February 2011 was £10,031. The average female executive woman will be cheated out of £330,000 over her lifetime. Across the private and public sector, the Gender Pay Gap in the UK is 15.5% – slightly better than the OECD average, but certainly nothing to write home about.

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