As today is International Women’s Day, here at The Deetken Group, we took some time to reflect on what International Women’s Day means to us as a company. This brought us to thinking about how we could make a modest contribution to this important campaign. After much internal debate, we decided we wanted to reflect further on the continued disparity in economic outcomes between men and women – the pay gap – and what employers can do address this issue in the workplace.
What is the economic impact of the “pay gap”?
In Canada, women who are working full-time currently earn an average of 73.5% of what their male counterparts earn. This disparity in economic outcomes is not only a serious human rights issue, it also has a negative economic impact.
In 2015, the Province of Ontario commissioned Deloitte, a consulting company, to estimate the economic impact of closing the wage gap as part of a report the Gender Wage Gap Strategy Steering Committee prepared for the Minister of Labour and Minister Responsible for Women’s Issues. Deloitte estimated that if women were compensated at the same rate as men based on demographic characteristics (e.g. education level, age, marital status), and experience in the workplace (e.g. job status, occupation, and sector), Ontario’s women would earn an average of $7,200 more per working year. This amounts to $18 billion dollars of forgone earnings in the Province. That’s 2.5% of Ontario’s GDP. Deloitte further estimated that the marginal increase in personal and sales taxes would be $2.6 billion and that government spending on social assistance, tax credits, and child benefits could decrease by $103 million due to increases in families’ incomes. In other words, closing the pay gap would have clear, positive economic implications for the province.
Beyond this direct measurable impact, there is also a less measurable economic impact. The gender norms that so often influence men and women to make different career choices may prevent the efficient allocation of labour. For example, men enter the STEM (Science, Technology, Engineering and Math) professions and women choose careers in the healthcare or education professions because these seem to be more “gender appropriate”. Therefore we are left with workers who may be most productive in a role which has been socially deemed as “gender inappropriate” thereby self-selecting into careers to which they are less suited. This represents an additional productivity loss to the entire economy.
Beyond the economic impact, a recent survey of 1,000 Canadians found that the majority of people agree that men and women do not receive equal pay for equal work and are not treated equally in the workplace. The survey also found that two thirds of respondents would be less likely to apply at an employer where they knew that women earned less than men for the same work – so how do we solve this problem?
So, what can we do about it?
The first step to addressing the pay gap is to understand some of its key drivers. The issue is complex and depends on a number of factors, including, among others: differences in choice of occupation and difference in pay within the same occupation, we consider these below. (It is important to note that regardless of how the pay gap is dissected, a portion always remains attributable to overt discrimination).
Problem: Differences in Choice of Occupation
The difference in choice of occupation explains 15% of the gender wage gap. However, the view that this choice is free of discrimination makes things too simple. A recent reportby the Canadian Centre for Policy Alternatives (CCPA) and Oxfam Canada found that, in Canada, jobs that are associated with traditionally unpaid and traditionally female work (e.g. caregiving) are poorly compensated compared to work of similar complexity and physical risk in male-dominated fields. For example, truck drivers (97% of whom are male) make a median annual wage of $45K, while childhood educators (97% of whom are female) make a median annual wage of $25K.
Take a moment to consider the discrepancies in jobs requiring similar education and responsibility, or similar skills, but divided by gender. A New York Times article, drawing on extensive research, notes that the median earnings of information technology managers (mostly men) are 27% higher than human resources managers (mostly women). Janitors (usually men) earn 22% more than maids and housecleaners (usually women).
In addition, as professions shift from being primarily male-dominated to primarily female-dominated, pay tends to decrease. For example, a study undertaken by Professor Levanon of the University of Haifa in Israel, found that between 1950 and 2000, the gender balance of workers in the recreation industry shifted from mostly men to mostly women. During the same period, median wages declined by 57% (after accounting for change in the value of the dollar). Overall, this study found that when women moved into occupations in large numbers, those jobs began paying less, even after controlling for education, work experience, skill, race and geography.
Strategy: Determine the Value of Each Position
To combat this phenomenon, a Harvard Business Review article suggests that managers, with their HR partners, should determine the value each position brings to the organization regardless of who occupies the position. By determining the level of knowledge, responsibility, and value to the organization each job contributes, the risk that women, especially women of colour, be penalized on future salaries based on past pay inequalities is reduced. These determinations can then be tempered by internal equity and the candidate’s experience and skill set.
Problem: Differences Within Occupation
The primary difference cited for the wage gap is that women are more likely to ask for time off or for more flexible hours in order to care for family (usually children, or elderly family members). However, critically, this gap does not disappear when we adjust for hours worked. This is because in many professions, employers consider the value of the work of an employee who is putting in 30 hours a week to be less than half the value of the work of an employee putting in 60 hours per week. This non-linearity disproportionately punishes flexibility and since women are more likely to demand this flexibility, the disparity appears in a gender wage gap. (See this report by Claudia Goldin for more on this.)
Strategy: Reduce the “Pain” of Flexible Hours
Because of the distribution of household labour, women are more likely to request flexible or fewer hours and this request can be met with disproportionately large pay cuts. The pay gap is particularly acute in professions where there is a premium placed on working long hours and being 100% available. (Finance, business consulting, and law are particularly well-known for these work patterns.) However, there are other highly specialized fields that have found ways to cope with these issues. Obstetrics, a field where professionals work in small groups to ensure someone is always available for a delivery, or pharmacy, where practitioners use technology that ensures patient information is highly consistent to enable efficient and consistent handover of work.
Every profession and company is different, but an internal analysis will help to identify strategies to improve the linearity of pay with hours using work management methods and/or technology, among other potential solutions. Allowing this flexibility is not only beneficial for women, men are also increasingly requesting flexibility. Creating these opportunities at your own business may help to ensure you attract and retain the best employees.
Problem: Differences in How Behaviour is Perceived
A few years ago, research suggested that the reason women make less is because they don’t ask for raises and promotions at the same rate as men (in 2003 Linda Babcock published ‘Women Don’t Ask’ covering this topic). However, a 2016 research paper out of the University of Warwick has found that in fact women do not ask for a raise less frequently than men. However, women are less likely to get what they ask for. This is supported by a 2007 paper by Harvard Kennedy School lecturer Hannah Bowles which suggests that both men and women are less likely to want to work with (or hire) women who ask for raises. At the same time, this behaviour from men is not only tolerated but rewarded with higher compensation. This trend is consistent with broader research that suggests women face social and financial repercussions when they behave assertively.
Strategy: Improving Pay Transparency
A number of countries have started to demand that employers either report earnings by demographic characteristics to the government (e.g. the US) or that employers disclose the differences in pay between their male and female employees and even post the pay gap on their website (e.g. UK).
Improving pay transparency could be achieved by publicizing the formula used to determine salary, or like Whole Foods, making salaries public to all employees. By adding transparency to the pay structure, compensation can be abstracted away from how the assertive behaviour of asking for a raise is perceived and rewarded by managers.
Of course, on its own, pay transparency isn’t enough to close the wage gap but, combined with real commitment on the part of the company can encourage open dialogue about what factors determine pay and ensure these factors are merit-based. The evidence for spin off effects of these policies is mixed. They could be negative (reducing company morale) or positive (improving retention) and likely depends on current compensation structure and company culture.
After all that talk, what is Deetken doing?
At Deetken, we work hard to ensure an equitable workplace. We also allow for flexibility for all our employees so they are able to meet the demands of both the workplace and their home lives.
In addition, through Deetken Impact (our financing arm), we are committed to supporting organizations that support women and equality in the workplace. For example, for the past 5 years we have been funding Pro Mujer, an institution that economically empowers female entrepreneurs in Latin America (see our forthcoming “Reflections” piece on Pro Mujer). Pro Mujer is committed to helping women in Latin America to become agents of change by using an integrated approach which extends access to finance, health and educational services.
With commitment from all of us – both as employers and employees – we can work to close the pay gap and in so doing improve economic prosperity for all residents and a more equal society for ourselves and generations to come. Of course, it is important to note that the firm-level strategies suggested here do not replace the need for broader policy changes required to lift Canada from its 35th placing on the World Economic Forum gender gap list. There is much more work to be done.