She's Price(d)less: The economics of the gender pay gap

Key Findings

 

The importance of reducing the gender pay gap transcends productivity gains and economic prosperity. Reducing the gap will improve equality in the workplace. This is – and continues to be – a shared responsibility of government, business, its leaders, and its workforce.

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Despite significant advances in lifting women’s participation in the labour force and women’s pay across industries, and an increased recognition of the value of diversity in the workplace, the gender pay gap continues to persist. In Australia, the gender pay gap, based on full-time average weekly earnings, has fluctuated between 14 per cent and 19 per cent over the past 20 years, based on gender pay gap data published by the Australian Bureau of Statistics (ABS).

Based on the most recent statistics, the gender pay gap was 16.2 per cent in 2016 – down 2.4 per cent since a high of 18.6 per cent in 2014, however, it has remained relatively flat over the past 20 years. Australia is not alone. Recently, the World Economic Forum estimated that at current rates, it would take another 170 years to close the global pay gap between men and women (World Economic Forum 2016, Global Gender Gap Index 2016). 

Understanding the drivers of the gender pay gap is complex. They include a broad range of factors, including human capital and skills endowment, the level of educational attainment, on-the-job training and accreditation, work experience, and tenure. Critically, however, they also include labour market discrimination – where equally skilled individuals may face different earning potential and employment opportunities due to discrimination by gender, values, and culture.

A stronger focus on driving the value of human capital, while simultaneously addressing labour market rigidities will boost productivity, participation, and ultimately drive greater economic activity and prosperity for all Australians. As a result, it is imperative that there is coordinated and sustained effort in reducing the size of the gender pay gap, and the proportion is attributable to sex discrimination factors. This is a shared responsibility of business, business leaders, and the workforce more broadly – it is an issue that calls for social, cultural, and generational change.

Much attention has been dedicated to increasing awareness of gender pay inequity. However, relatively little evidence has been developed on the factors driving the gap and how these have changed over time. While the issues are complex, this evidence is critical in measuring progress and holding ourselves accountable in driving change.

In 2009, KPMG undertook a major study – Understanding the Economic Implications of the Gender Pay Gap in Australia for Diversity Council Australia (DCA) – to develop a more rigorous evidence base around the structural factors underlying the gender pay gap, the contribution of these factors to the gap, and the potential economic implications in terms of women’s participation in the labour force along with broader economic productivity and growth.

KPMG’s 2009 analysis was based on data from the 2007 Household Income and Labour Dynamics in Australia (HILDA) survey, and built on research undertaken in the United Kingdom (UK) by Walby and Olsen (2002).

KPMG’s 2009 Report found that in 2007, of the hourly pay gap of $1.29 ($1.70 in today’s dollars), approximately 35 per cent was potentially attributable to sex discrimination.

The study also suggested that introducing flexible work arrangements that enable women to reduce the length of time spent out of the workforce due to care-giving could reduce the gap between male and female earnings, potentially increasing economic activity by up to 9 per cent.

Similarly, implementing policies to reduce industry and occupational segregation could reduce the gender pay gap by up to 32 per cent.

Seven years on, KPMG’s latest analysis of the 2014 wave of the HILDA survey indicates that the gender pay gap persists, and sex discrimination continues to account for the single largest component of the gap, and indeed has increased over this time.

Based on analysis of HILDA data, KPMG estimates that the gender pay gap, on an hourly basis, increased from $1.70 in 2007 to $2.41 in 2014 in today’s dollars. It should be noted that the gender pay gap has fluctuated between 15 to 19 per cent over the last two decades, including increasing between 2007 and 2014, then reducing slightly between 2014 and 2016.2

  • Sex discrimination factors continue to be the single largest contributor to the gender pay gap. Indeed, the component attributable to sex discrimination has actually increased, from 35 per cent in 2007 to 38 per cent in 2014. This includes direct discrimination as well as indirect factors such as unconscious bias.
  • Industrial and occupational segregation continue to be among the most significant contributing factors to the gender pay gap. Together, these factors accounted for 28 per cent in 2007 and 30 per cent in 2014.
  • There has been a significant decrease in the impact of part-time employment in contributing to the gender pay gap, from 14 per cent in 2007 to 4 per cent in 2014. It is possible that an increase in the number of women working part-time in higher income occupations could be contributing to this reduction.
  • The largest change in contribution to the gap is from years out of the workforce. There are some limitations to the interpretation of this result due to the 2007 HILDA survey including 'access to unpaid maternity leave' as a factor, and subsequently omitting this in 2014 as a result of the introduction of a Government funded Paid Parental Leave scheme.

Focus, effort, and commitment are required to continue to close the gap – and in doing so, promote equality, unlock opportunity, and drive economic prosperity.

Please access the full report below:

She's Price(d)less: The economics of the gender pay gap

KPMG has developed this report, She’s Price(d)less: The economics of the gender pay gap, for Diversity Council Australia and the Workplace Gender Equality Agency. The report uses structured econometric modelling to determine the factors that underpin the gap, and to what extent they contribute to the issue.