Hard truths about the gender pay gap

We tend to think of the disparity between men and women as a problem of fairness, but it’s also a problem of efficiency

We all know that there’s a gap between the money men earn and the money women earn, but I hadn’t grasped quite how enormous that gap still is. Even in egalitarian Finland, men earn a third more than women. In the UK and the US, men earn two-thirds more. In the Netherlands and Austria, men earn twice as much. In Japan, men earn four times as much as women. 

These staggering numbers (from a 2017 study by the economists Henrik Kleven and Camille Landais) refer not to pay for doing the same job, but to the total gap in labour market earnings between men and women. That gap exists not just because women are, on average, paid less than men, but also because women do much more household work that is not paid at all. 

While it is natural to think of such huge disparities as a problem of fairness, it is also useful to think of them as a problem of efficiency. If in Japan men as a whole earn four times more than women, what does that suggest about the waste of female talent? (For that matter, how many Japanese men would be brilliant stay-at-home dads, if only they had the chance?) Japan is an outlier among rich countries, but the same pattern can be seen across the developed world. 

Last week, the London School of Economics launched the Hub for Equal Representation in the Economy, whose aim is to find “effective ways to improve representation of women and minorities at work”. One of its first research studies, still in progress, aims to quantify the problem of untapped talent by looking at pre‑pandemic data from a multinational company, covering about 100,000 employees across 100 countries. The researchers, economists Nava Ashraf, Oriana Bandiera, Virginia Minni and Victor Quintas-Martinez, can compare the pay earned by equally experienced men and women. As one might fear, there’s a gap: men are paid more than women, on average. 

What is counterintuitive about the data is that in some countries, the pay gap inverts: women are paid more than men. And those countries aren’t the ones we might expect. They are places such as Pakistan, where few women work in the paid labour force at all. 

What explains this? Simply, that in a country where the barriers to paid work for women are high, the few women who do have jobs at multinational companies are outstandingly good. These high‑flyers are promoted and paid more than the average man. 

This suggests that there are women outside the workforce who, if they did have paid jobs, would be well above average even if they weren’t superstars. If the barriers to their workforce participation could be lowered, they would raise the productivity of the companies that employed them. 

“If you equalised the barrier,” says Professor Bandiera, “some men would move out of the labour force, some women would move in, and productivity would increase by 32 per cent.” 

That productivity gain — almost a third — is the average across all the countries studied; in the places with particularly unequal labour force participation, it’s much higher. It’s quite a lot of money to be leaving on the table. 

“Some people are good at some things and some at others,” says Bandiera. “But there’s a big mismatch between those aptitudes and how we actually assign roles. Gender is just the most obvious example of that mismatch.” 

With both economics and fairness pointing in the direction of greater equality, it is no surprise that we have seen some progress over the decades. That progress, however, has been slow. 

Bandiera is hopeful that the pandemic, with its shake-up of the way we all work, might accelerate things. But while we all love an optimist, recent research from the Institute for Fiscal Studies suggests a grimmer conclusion. 

When British schools were closed in the spring of 2020, with many people trying to do office work from home, families shuffled the chores in order to cope with the constant presence of children. Alison Andrew and her IFS colleagues found that in households where the father earned more than the mother, men did much less housework and less childcare than women, while doing more paid work and vastly more uninterrupted paid work. That is what economic logic might suggest. 

But even in households where the mother earned more than the father, women did more childcare, more household work and less uninterrupted paid work than men. Economic incentives matter, but our gendered expectations of who takes care of housework have their own perverse force. 

There has been progress over time, notably in the educational attainment of women, who in the UK are now more likely than men to be university graduates. But this is a campaign to be fought on many fronts. The inequality between men and women is showing no signs of disappearing of its own accord.