How long must women wait for equal pay?

Bożena Wielgoszewska, Alex Bryson, Francesca Foliano, Heather Joshi, and David Wilkinson.

You might expect slow and steady progress in narrowing the gap between men’s and women’s earnings – but history has less straightforward lessons.

Findings from our gender wage gap project show that the differences between men’s and women’s earnings have decreased, but the progress has slowed in recent years. Dramatic change only took place with major events, such as war or a big policy initiative. Later cohorts face better conditions, but the gap is still large and, at our estimated rate of convergence, it will not close for another 40 years.

The covid-19 pandemic has further highlighted labour market inequalities and raised questions about the future progression towards gender equality. Some expect that more widespread flexible working and normalisation of working from home will lead to greater equality. But others argue that progress will be reversed for women, jeopardised by taking a bigger share of housework and childcare during lockdown.

Our analysis focused on two British birth cohorts, one born in 1958 (tracked up to age 55), and one born in 1970 (tracked up to age 42). We also examined historic data covering the last 100 years and a review of existing studies.

What happened to gender equality over time?

Although the covid-19 pandemic is unprecedented, history tends to repeat itself. Therefore, in order to fully understand how the gender pay gap will evolve, we first needed to evaluate what happened in the past, and how effective policy interventions were.

In 1921, women earned about half (50%) of men’s hourly pay. Since then, the gap closed by 10% during World War Two and by another 10% in the 1970s, when the Equal Pay Act was introduced. However, since then the convergence has slowed. The latest statistics estimate the average gender pay gap in the UK at a little below 20%.These changes to pay were accompanied by changes in other aspects of life. Women were gradually catching up with men in terms of education (overtaking them in the 1990s) and, except for a couple of peaks after WWII, women’s labour market participation rates increased. Today, although more likely to work part-time, women account for nearly half of the workforce.

Where do the differences in pay come from?

Although UK legislation mandating pay equality is 50 years old, women’s hourly pay is lower on average. As shown in our research, expert opinions diverge as to why. Some argue that the different employment patterns reflect differences in preferences, while others say these differences reflect the constraints women face in the labour market. These discriminatory practices can be further divided into taste-based discrimination (an overt prejudice or dislike towards a particular group), statistical discrimination (an inference about a person’s qualities based on statistical characteristics of the group they belong to), and stereotyping (fixed ideas that certain groups are better at certain tasks).

The pay comparison is further obscured, because there are systematic differences between men and women in terms of their human capital (i.e. experience and education). For example, women take time out of the labour market to look after children more often than men and then they are more likely to return to part-time work.

The figure below shows the estimated gender pay differentials in selected UK studies published over the last 50 years – both raw and adjusted for differences in human capital. The comparison is shown as female-to-male ratios, so if the pay of men and women were equal, these ratios would be one, and anything below one indicates a male premium.

The raw estimates show that in 1971 married women earned about 50% of the male wage, increasing for women as a whole to 82% by 2015. Taking account of differences in human capital between men and women always reduces the gap, bringing the ratios closer to one. The magnitude of this adjustment is mostly due to work experience.

Chart 1: Estimated gender pay differences in previous studies

Notes on data sources: GHS – General Household Survey; WES – Women and Employment Survey; BHPS – British Household Panel Survey; LFS – Labour Force Survey

In order to investigate how the differences in pay develop over the course of peoples’ lives, we analysed the data obtained from the cohort born in 1958. The chart below shows the estimated pay ratios at the ages when they were interviewed. The black line, reflecting the ratio of raw estimates, is U-shaped – growing initially until the peak at age 42, but closing in later in life.

To better understand the factors behind these differences, we accounted for gender difference in education and work experience, as well as family formation.

The differences from all our models are similar at age 23, implying that differences in education, experience and family situation, albeit small at this age, make little difference.

Differences in education and family differences explain a small proportion of the gap, but the adjustment for work experience makes substantial difference, especially in later life. The differences in experience were particularly large for full-time jobs. Part-time experience contributed little to women’s rate of pay.

When cohort members were 55, men still received an unexplained pay premium.

Chart 2: Raw and adjusted ratios in the 1958 cohort

The cohort born in 1958 reached school leaving age around the time when the Equal Pay Act was introduced but, as shown above, the differences in pay still existed throughout their working lives. This led us to wonder whether the effects of the Equal Pay Act were more gradual.

To investigate this, we extended our analyses to the cohort born in 1970 and focused on the human capital adjustment. The differences in the raw and human capital adjusted ratios between the two cohorts are shown in the chart below.

Chart 3: Cross cohort comparison of the raw and adjusted female-to-male ratios

Comparing the two cohorts, we see that the estimates are closer to one for the more recent cohort at all ages and that, at least in mid-life, the proportion of the wage difference associated with human capital has grown. However, even in 2012 – when the later cohort were aged 42 – and even when we account for the differences in human capital, the ratios are still below one at only 92%.

Lessons for policy

Although a number of key policies in recent decades have aimed to equalise pay, at our estimated rate of convergence the gap will not close for another 40 years.

Following the Equal Pay Act of 1970, which outlawed the use of separate rates of pay for men and women, the gap substantially decreased. Since then, the Employment Protection Act contributed to increases in women’s employment rates; the Equal Pay Amendment of 1983 allowed equal pay for comparable work; the Statutory National Minimum Wage reduced the gap at lower end; the National Childcare Strategy provided free nursery education; and the Equalities Act made gender wage audits compulsory for large firms (until the pandemic lockdown). Although more recent policies, such as Shared Parental Leave and Childcare for working parents, or indeed the impact of the pandemic, are yet to be evaluated, there is still room for new policy initiatives.

Our findings suggest that equal opportunity policies facilitating employment for people with family responsibilities could address the larger pay gap experienced by parents. In addition, given the estimated pay gap exists amongst non-parents too, there is a need for better enforcement of anti-discrimination measures regardless of family status.

Policies which tackle the ‘glass ceilings’ and ‘sticky floors’, by focusing on discriminatory employer behaviour in hiring practices or by requiring greater transparency, could also promote more rapid convergence. However, based on the evidence from the past, the policies that directly intervene in wage setting, such as the Equal Pay Act and minimum wage, have been the most effective and should be a key component of future policies.

For more information, read the full papers:

A Short History of the Gender Wage Gap in Britain | Oxford Review of Economic Policy 

The gender gap in wages over the life course: evidence from a British cohort born in 1958 |Gender, Work & Organization