Gender Equality Part 1: Measuring the Gender Pay Gap
Explore how the gender pay gap is calculated (and the limitations of that calculation).
Written by Victoria Kent, Senior Investment Specialist
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“Gender equality is not only a fundamental human right, but a necessary foundation for a peaceful, prosperous and sustainable world.” – United Nations.
In this three-part series, we’ll explore how the gender pay gap is calculated (and the limitations of that calculation), its causes, how Australia compares globally, and what can be done to address gender inequality more broadly. We also touch on the hot-button issues of board quotas and how the GPG impacts superannuation.
An important point to note as you navigate the series: the terms equal pay and gender pay gap are not the same thing.
Measuring the Gender Pay Gap
On the face of it, the Gender Pay Gap (GPG) sounds alarming, behind-the-times and downright illegal. It's an issue that gets people understandably upset, because we all (hopefully) believe in fairness and the inherent equality of the sexes.
And while it's often quoted in shocking numerical terms, the simplicity of these statements belies the complex nature of the calculation and the issue.
"Women make 77 cents for every dollar men earn."
"Women earn on average $255.30 per week less than men."
While GPG measures can describe the overall position of women in the workforce, they cannot determine or explain the differences in earnings between women and men.
Let's dig a little deeper.
What's in a formula
To really understand the GPG, we need to understand the calculation – its strengths and limitations. Most importantly, we need to know what the Australian Bureau of Statistics (ABS) states upfront:
"where a gap exists, it does not necessarily indicate that a woman is paid less than a man with similar qualifications or experience in a comparable role. The composition of women and men in different industries, different employment arrangements, such as full-time/part-time status and those in casual employment, and rate and type of pay, are all factors that influence the GPG."
Equal pay refers to when women and men perform the same role or different work of equal or comparable value and are paid equally. It is unlawful in Australia not to do so, as the Fair Work Act 2009 protects people from being discriminated against on the basis of sex.
Equal pay is not just about equal wages; equal pay takes into account discretionary pay, allowances, performance payments, merit payments, bonus payments and superannuation. The measurement of equal pay is complex and driven by many variables.
It would be overly simplistic to say women literally earn 77c for every $1 a man does (if that were really the case, most of the workforce would female!).
Unequal pay is just one of the drivers of the GPG.
You would likely be familiar with the GPG commonly expressed as either a rate ratio (proportion of female to male average earnings) or a percentage gap (difference between male and female average earnings as a percentage of male average earnings).
Here in Australia, the ABS has a selection of GPG measures that can be used for different purposes:
Non-managerial adult hourly ordinary time cash earnings (mean and median)
Adult weekly total cash earnings (mean and median)
Full-time adult weekly ordinary time earnings (mean)
The last one is the one used by Workplace Gender Equality Agency (WGEA) to calculate the ‘national gender pay gap’ featured in their fact sheets and reports. As a measure, it’s easy to interpret but that doesn't make up for its key limitation:
This measure omits a large proportion of female employees who, as noted above, are more likely to be employed on a part-time basis.
It's important to recognise the full time workers included in the measure are generally younger – the percentage of employed women who work full-time hours peaks in the late 20’s age group, at around two-thirds of employed women in 2017-18.
Why is this relevant? Because earnings generally increase with age.
So, here we have a measure restricting the population to full-time employees only, granting greater weight to younger women earners.
“Yes, there’s no perfect measure” I hear you saying, but we can still acknowledge a gap exists. According to the Australian Workplace Gender Equality Agency (WEGA), pay gaps currently persist across every industry, occupation and manager category.