Gender pay gap: a revealing statistical curiosity

Two or three weeks back I wrote briefly about the latest figures on the gender pay gap, basing my comments on an ONS press release.

Earlier this week I attended an ESRC conference on gender inequality – a rather depressing affair, as most of the participants assumed that this is a major capitalist problem which must be “fixed” by government intervention. However it got me thinking again and I’ve just been looking in more detail at the figures and doing some calculations of my own.

A feature of my earlier post was a fall in the median gender pay gap (measured for full-time employees) from 12.6% in April 2008 to 12.2% in April this year. I have now had a look at the figures for the public sector and the private sector separately and I find that the median pay gaps in both the public and private sector actually rose – a bizarre result that the ONS press release ignored.

In both the public and private sectors median pay rose faster for men than for women. In the private sector men’s earnings rose by 3%, as against 1.8% for women, while in the public sector the increases were 4.2% and 3.8% respectively.

The overall median pay gap fell because of what happened to employment. The full-time gender pay gap is always higher in the private than in the public sector (this year it was 20.8% as against 11.6%). In the earlier post I speculated that employment would have fallen faster in the private than the public sector. What I hadn’t realised was that employment classified as public sector actually rose over this period – female employment from 2.549 million to 2.629 million, male employment from 1.999m to 2.113m. Private sector employment, on the other hand, plummeted for both males (8.508m to 8.026m) and females (3.875 to 3,636m).

Thus the explanation of the paradox. A fall in the relative importance of private sector employment will, other things equal, lead to a fall in the gender pay gap. By the same token, the recovery in private sector employment which we are all hoping for will tend to increase the pay gap. It just illustrates once again my contention that this aggregate indicator is almost meaningless and we should challenge it every time a populist politician or pressure group quotes it.

The exercise also reminds us of just how privileged the public sector remains in the middle of a recession. Faster pay increases and employment growth. Wow.

Len’s detective work certainly reveals a statistical paradox of averages when the ‘mix’ changes. The same thing can happen in business when (for example) a firm’s overall profit margin goes up even though the profit margin on every single product has fallen.His example reveals the danger of political interference. Politicians are tempted to pretend there is ‘good’ news even when there isn’t. They tell untruths, often knowingly, sometimes with genuinely profound ignorance, to ‘justify’ their prior interference. We simply can’t trust them.Insurance used to be regarded as a matter of ‘utmost good faith’. Wouldn’t it be splendid if politics could be the same!

Differential minimum wages could also close the GPG. With an hourly minimum wage of £30 for women, only highly career-oriented women could enter the labour market, and average female earnings would rise sharply.
The whole idea that the GPG is a market failure which can be corrected politically seems to assume that we voters are split personalities. In our everyday lives, we are highly prejudiced against women (including women being prejudiced against other women). But when we enter the voting booth, we suddenly become more enlightened, and vote for policies that would prevent us from doing what we do in our business lives. And when we’re finished voting, we go on discriminating again.

I once had a colleague who was leaving City University and he said to his department “my departure will raise the average research capability of both City University and the university I am going to join”. In other words, he was below average in our department and above average in the department he was going to join because that department had a less good reputation than ours! His move could lead the government to claim “average research performance of UK universities improves” – if it was an average of averages. Misleading things averages.

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