Mon Dec 4

It's not just women at the top who are paid less than men

Written by Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne

Debate around gender pay gap often gravitates towards the higher-wage end of the labour market but it misses the employees at the other end of the pay spectrum – those who receive the legal minimum wage for their job. It’s the gender pay gap among these low-wage workers we should be most concerned about.

In 2016, almost a quarter of Australian jobs were paid at the minimum or “award” rate, a rate that is in most cases set by the Fair Work Commission. It might seem like there should no gender pay gap among minimum-wage workers, since by definition they are all being paid the minimum wage. However, there are in fact many different minimum wages in Australia.

There are currently 122 federal awards, covering a variety of industries and occupations, and with each specifying numerous different minimums depending on things like the tasks and duties of the job and the qualifications and experience of the employee.

This, combined with the fact that men and women differ considerably in the types of jobs they do, means it is still possible for a gender pay gap to exist among minimum-wage workers.

Indeed, according to data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, women on minimum wage earn roughly 10% less per hour than men on the minimum rate, While the minimum wage gap is smaller than the 19% gap among those paid above the minimum wage, it is still sizeable.

Moreover, the gender wage gap among award-reliant employees can’t be explained by differences between men and women in their skills and abilities.

Unlike wages for workers earning above-minimum wages, the gap among minimum-wage workers cannot stem from employer discrimination, superior negotiating skills of men, or higher productivity of men, since everyone is being paid the minimum permissible rate of pay.

In fact, minimum wages are systematically lower in jobs more commonly held by women. For example, minimum wage workers in the health care sector earn substantially less than similarly skilled minimum wage workers in road transportation.

The higher the male share of employment in an occupation or industry, the higher the wages for both men and women. The gender wage gap among minimum wage earners could be reduced if it was neutral with respect to the gender composition of occupations and industries.

Whether and how policymakers should address this issue depends on why there are lower minimum wages for jobs more commonly held by women. There are two main explanations that have sound economic rationales underpinning them.

In order not to hurt employment in an industry, the Fair Work Commission might have intentionally set lower minimum wages where employers have lower “capacity to pay”. For example, this might be because employers have little market power – there’s a lot of competition – and so they can’t charge high prices.

Higher minimum wages might also partially reflect fair compensation for job characteristics unrelated to skill requirements, such as danger or dirtiness.

However, these explanations are at best only partially convincing. Nursing, for example, is both female-dominated and characterised by high employer market power.

And while compensation for jobs with unpleasant characteristics is a plausible explanation for higher award wages of mostly-male construction workers, we find wages are low among award-reliant hospitality workers, who are disproportionately female and often perform physically demanding work in hot and loud environments.

This is not to say that this “capacity to pay” and other job characteristics have no role in the patterns of minimum wages across industries and occupations. However, there is little transparency in the reasoning that is driving the differences in minimums set by the Fair Work Commission, and so we have no way of knowing the nature and extent of these forces at play.

This leaves room for the possibility that the lower minimum wages in female-dominated occupations and industries are driven – at least partly – by an undervaluation of “women’s work”.

A wage-setting process that explicitly acknowledges and quantifies the factors considered in determining minimum wages could ease this concern.

Until then, we cannot have confidence that the minimum wage system does not systematically disadvantage women relying on minimum wages.

Authors: Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne