Explaining the 'unexplained' gender pay gap

Search for the term "gender pay gap" on YouTube and you'll find that many of the most-watched results feature the concept being strongly challenged or outrightly dismissed.

It's an illustration of the challenge faced by researchers in informing both the general public and policymakers about the gender pay gap and how it functions in various societies around the world.

The gender pay gap, defined as the difference in average gross earnings between men and women, undoubtedly exists around the world. However, one reason why it provokes debate is a lack of data on its underlying causes.

That was the motivation behind a major new study recently published in the scientific journal Nature Human Behaviour, according to Halil Sabanci, one of its authors.

"We need to make sure that policies should mandate equal pay for equal work," Sabanci said on Tuesday at an online seminar organized by the Frankfurt School of Finance & Management. "But the problem with this apportioning is that it requires a huge amount of data to understand where the gender pay gap comes from."

Gathering a huge dataset

To meet that huge data challenge, the study brought together academics from 15 countries around the world including Germany, the US, Canada, Slovenia, Japan, South Korea and Israel.

The researchers had access to an unprecedented amount of data, including contractual details of workers and tax and social security data, as well as national statistics databases. Compiled over five years, it has helped provide one of the most comprehensive datasets yet compiled on the gender pay gap.

The study has upended previous research. For example, one common perception of the gender pay gap is that it is largely driven by the so-called "sorting" of women and men into different sectors, occupations and firms. In other words, men tend to end up in higher-paying professions and that's the main reason they earn more.

However, one of the major findings of the new study contradicts this. It found that in all 15 countries that were studied, the "within-job gender gap" was responsible for around 50% of the overall pay gap. This is when men and women work in the same job in the same industry or for the same company, and yet the women are still paid less.

"Previous research has indicated that most of the pay gap disappears if you take workplace and job function into account," said Sabanci. "But that research dates back to the early 1990s, and we found a much higher 'within job inequality' than was previously believed and also than what was indicated by previous studies."

That's not to say the idea that men tend to end up in higher-paying professions isn't true. It's just not as significant a driver of the pay gap as previously understood. For example, the research found that Germany's overall pay gap is 21%, meaning a woman on average earns €79 ($84) for every €100 earned by a man.

However, when factors such as job profession are taken into account, there remains the unexplained "within-job" pay gap. In Germany, it's 13%, meaning that even for the same job, a woman earns €87 for every €100 earned by a man.

"It is not the classic explanation that 'the main source of the gender pay gap is that women become nurses, men become doctors'," Sabanci said.

Tackling the problem with the right policies

The researchers say the new evidence showing the existence of the "within-job" pay gap means policymakers need to find ways to address it, as well as tackle the long-understood problem of getting women into the best-paid professions.

"It implies that there is something to be tackled in the workplace," Sabanci said. "We need to ensure equal pay for equal work, in addition to ensuring that women are well represented in high-paying jobs, in addition to tackling these structural problems.

"Our suggestion is that [policymakers must introduce] policies focusing on equal pay for equal work and policies that target hiring, promotion and other segregation processes, the more structural problems, they are both vital to tackling the gender inequality in the labor markets," he said.

He also emphasized that a major cause of the unexplained "within-job" inequality is what's known as the "motherhood penalty" That's the fact that because women typically take longer parental leave than men, they face challenges when returning to work and end up in a "self-reinforcing" process where it is harder to be promoted and reach the same salary level as their male colleagues.

The gender pay gap exists

The complexity of the gender pay gap problem is clear from the massive dataset compiled in the study. However, what is not especially complex is establishing the fact that the pay gap exists and is a significant problem, according to Sabanci.

"The drivers and the implications, sociological and psychological underpinnings of the gender pay gap...of course they are complex," he said.

"But at its core, the gender pay gap is a pretty straightforward phenomenon. So by definition, the gender pay gap means that on average, women and men are basically renumerated differently. And in almost all industrialized countries, women earn less than men."

Edited by: Ashutosh Pandey