You might think that the financial sector had received more than its fair share of obloquy in recent months, but last week saw an attack from yet another direction, with the publication of a research report by the Equality and Human Rights Commission (EHRC). This report, written by authors from the National Institute of Economic and Social Research (NIESR), is entitled Employment and earnings in the finance sector: A gender analysis. It was commissioned to assist with the EHRC’s inquiry into alleged sex discrimination in the sector.
Unsurprisingly in view of what was previously known, it shows that men and women do very different jobs in the financial services industry, itself a hugely disparate sector embracing everything from two or three person financial advisory businesses, to credit unions, building societies, pension funds, insurance companies, Islamic bankers, hedge funds and so forth as well as the contemporary pantomime villains in our multinational banks. In the UK prior to the crash this meant around 1.3 million jobs with thousands of different employers. From earnings data in the Annual Survey of Hours and Earnings, it is possible to construct synthetic “pay gaps” between men and women (on an annual, weekly, or hourly basis). These show that the finance sector displays markedly larger gender pay disparities than is the case in the economy as a whole.
I have indicated elsewhere (Should We Mind the Gap? Gender Pay Differentials and Public Policy) that such statistical artefacts in themselves demonstrate absolutely nothing about any underlying sex discrimination or breach of equal pay legislation. In the same way, black Caribbean women earning more on average than white women, or gay men earning more on average than straight men (both established facts in the literature) certainly don’t mean employers discriminate in their favour.
This hasn’t stopped those with closed minds on this topic, however. A representative of the Fawcett Society was quoted in the press as saying the new report “is evidence of straight discrimination” in financial services. Harriet Harman says that the report “proves that the finance sector is a breeding ground for discrimination and unfairness”. Ms Harman, who I doubt has read the lengthy report in detail, goes on to promise “tough new measures” to deal with pay inequality in this month’s Equality Bill. She is echoed by Trevor Phillips from the EHRC who says the report justifies “significant steps” to address pay issues.
In fact the report, by two respected researchers, provides a careful statistical portrait of employment and earnings patterns in the financial sector and certainly does not over-interpret the data. It also documents considerable efforts made by major finance employers to provide female-friendly working environments.
What the report does not do is use multivariate econometric techniques to decompose the gender pay gap, as much research in this area does. Such decomposition usually shows that a large proportion of the pay gap can be explained by objective economic factors, leaving only a minimal possible explanatory role for sex discrimination. However, the evidence set out by the NIESR authors strongly suggests that much of the large pay gap in finance can indeed be explained by factors such as the type of jobs men and women do in the sector (women are concentrated in administrative and secretarial jobs), their qualifications (men employed in finance are twice as likely to have a degree), the size of the firm (women are concentrated in smaller establishments), the hours worked (men work much longer hours), the location (men are more likely to work in the City of London) and so on.
Quite how the “tough new measures” dreamed up by Ms Harman can change these factors remains to be seen. And, more importantly, why should we try? Sex discrimination and unequal treatment in pay are illegal. That means a particular employer is treating a particular individual unfairly. As the law stands, this should be dealt with, if the evidence supports it, through a Tribunal or the Courts. What the EHRC and its supporters are doing is something different: smearing an unpopular industry’s reputation to support a social engineering project which, even if it were desirable, is unlikely ever to succeed so long as men and women have on average different qualifications, preferences and attitudes and are free to choose the jobs they want.