Before delving into the topic, it is important to acknowledge that the Gender Pay Gap, however you are calculating it (we will see different ways later in the article) is just one symptom (one of the most visible and tangible outcome) of the much bigger topic of gender inequality in the labour market.

What is the Gender Pay Gap?

The gender pay gap is the difference in the average earnings of men and women, often expressed as a percentage of men’s earnings. Therefore, a Gender Pay Gap of 10%, means that an average woman earns 10% less than the average man.

This gap can vary widely by industry, occupation, and region. Historically, the concept has evolved as women’s participation in the workforce increased, with formal recognition growing in the late 20th century.

The principle of “equal pay for equal work” was introduced in Europe in 1957, yet the European Union reports a gender pay gap of 13% ¹. Globally, the International Labour Organization estimates a gender pay gap of 20%, with substantial variation across countries².

Reasons for the Gender Pay Gap

Several factors contribute to the gender pay gap. According to the OECD, these include:

• Occupational Segregation: Women and men often work in different jobs or sectors, with traditionally ‘female’ roles often valued less financially.
• Work Experience and Career Interruptions: Women are more likely to have career gaps, primarily due to caregiving responsibilities, impacting their earnings and career progression.
• Part-time Work: Women are more likely to work part-time, often with lower hourly wages than full-time positions.
• Discrimination: Despite legal protections, gender-based discrimination in hiring, promotion, and pay persists.

Very often the Gender Pay Gap is also referred to as a “Mother Pay Gap” which highlights the fact that the main reason for the difference in pay is due to staying away from the job.

Types of Gender Pay Gap

The gender pay gap can be calculated using different methods:

• Median vs. Mean Earnings: The median, which is the middle value in a list of numbers, can provide a more accurate representation than the mean, or average, which can be skewed by very high or low values.
• Hourly vs. Annual Earnings: Considering hourly wages can account for part-time work differences, while annual earnings provide a broader view of gender income disparity.
• Adjusted vs. Unadjusted: Adjusted calculations consider factors like occupation, hours worked, and education, while unadjusted figures compare overall earnings regardless of these factors.

For granular analyses it also makes sense to review the Gender Pay Gap by various criteria to reveal if there are any structural biases. 

Unadjusted Gender Pay Gap

When we read in the newspaper about the Gender Pay Gap the unadjusted method is used very often. It is usually expressed as the difference between the median or the mean earning per gender. While critics often claim that this is not reflecting the reality and compares apples with oranges, the unadjusted Gender Pay Gap reveals the bigger issue of gender inequality due to job segregation, underrepresentation, education,  and career interruptions. 

Adjusted Gender Pay Gap

When we want to compare gender pay differences for men and women who do similar or equivalent work we use the Adjusted Gender Pay Gap method. Here we are taking valid factors such as role, education, work experience, and management responsibilities into consideration. 

After taking all these objective criteria into consideration, the remaining Gender Pay Gap can not be explained by any of the objective variables above and therefore be subject to discrimination, and not following the principle “Equal Pay for Equal Work”.

In the new European “Equal Pay” Directive companies are obliged to report the unadjusted gender pay gap and to take actions if the Gap is higher than 5% and cannot be explained by objective and gender neutral factors. That means, if the Adjusted Pay Gap is bigger than 5%, only then actions need to be taken.

But it is important to acknowledge that a small Gender Pay Gap doesn’t mean more equality. A company that is reporting a Gender Pay Gap < 5% in the “Management occupation” might be close to gender equality from a compensation perspective but might have the issue that only a small number of position holders are women. 

Again we can see that the Pay Gap is only one step towards Gender Equality.

Clarification

It’s crucial to clarify what the gender pay gap is not. It is not:

• Solely about Equal Pay for Equal Work: While this is a factor, the gap encompasses broader issues like occupational segregation and labor market disruptions due to caregiving.
• Always due to Direct Discrimination: Indirect factors like societal norms and historical job valuation also play significant roles.
• Uniform Across All Sectors and Regions: The gap varies significantly across different industries, occupations, and countries.

Conclusion

The gender pay gap is a complex issue rooted in a combination of economic, societal, and discriminatory factors. Understanding its nuances, including the various calculation methods and common misconceptions, is essential for addressing this global challenge effectively.

1 https://www.consilium.europa.eu/en/infographics/pay-transparency/

2 https://www.ilo.org/wcmsp5/groups/public/—ed_dialogue/—act_emp/documents/publication/wcms_735949.pdf