Outcomes elude equity intentions

Dr Rachel Hodder
The National Business Review
2 December, 2016

It’s pretty good being a working woman in New Zealand, which has one of the lowest gender pay gaps in the OECD.

Gender disparities in many occupations have been closing. In particular, managerial roles are no longer the exclusive domain of men, with now equal representation.

However, this is not to say some inequities have yet to be eliminated. A substantial gender segregation still occurs with female-dominant industries on average paid less than male-dominant ones.

Last week, the government announced that it would accept the Joint Working Group’s recommendations, which will allow employees to take pay equity disputes directly to their employers.

These changes were motivated by the landmark ruling in the TerraNova case where it was ruled that female-dominant aged care work has been historically undervalued due to gender discrimination. This has opened the door for a flood of similar claims to be made in other female-dominant industries.

The intentions of the changes are laudable but good intentions do not always make good policy. Overseas experience with similar pay equity laws is a good reason to be concerned.

There is little evidence that similar laws have reduced gender pay gaps. Adjusting pay in undervalued female-dominant industries is a blunt tool compared with adjusting pay for individual undervalued female employees in any industry.

Ironically, some studies have demonstrated that pay equity laws have widened the pay gap. Making employers pay more in whole industries reduces the number of jobs available, pushing many women into lower paid work.

A review of similar pay equity laws in Ontario is discouraging. The costs of administering the system ate up much of the available compensation change.

Establishing plans for compensation systems was much easier said than done. These costs were disproportionately felt by small employers where often the administrative costs were more than the recognised pay differences.

Difficult in practice

Disputes turned into a litigation nightmare. Rules to determine what counted as equivalent work seemed simple on paper but were difficult to evaluate in practice.

This led to endless disagreements about what male-dominant industries could be considered as relevant comparators. The main winners of the laws were consultants and lawyers, not women.

One would hope the government has been advised on the likely problems the new laws could encounter based on overseas experience.

The criteria proposed to evaluate whether a pay equity claim has merit are broad. It seems any industry with predominantly female employees will be able to make a claim to their employer.

The criteria to determine how to compare work with male-dominant industries is yet to be determined. It is hard to see how any method could avoid the disputes that Ontario experienced.

Setting up rules that will establish how to choose a male-dominated industry with equivalent skills as midwifery is not going to be an easy task.

The working group behind the recommendations admits it hasn’t been able to reach agreement on this aspect. It calls on the government to provide more information about industry employment conditions to help settle pay equity disputes.

This complaint exposes the flaws in the recommended changes. It reveals outdated thinking about the determinants of wages. New Zealand has moved away from collective bargaining and centralised wage determination.


How to quantify

In flexible labour markets it is not easy to quantify the value of particular skills, effort and experience, and expect these to be reflected equally in all areas of work.

Perhaps more relevant is the difficulty of quantifying non-wage work benefits. Industries that offer flexible hours or opportunities for part-time employment are particularly valuable to working mothers. But it is not obvious how they should be considered in pay equity disputes. If they are not properly accounted for, employers will have less incentive to provide them.

Instead of asking why female-dominant industries pay less than male-dominant ones, perhaps we could instead ask why women choose to work in industries that are less well paid then other equivalent industries. Surely if the work is comparable but higher paid a woman would at least try to move to the higher paid industry?

It may be there are barriers to women being employed in higher-paid male-dominated industries. Perhaps employers discriminate against women applicants, perhaps the male-dominant industries have work environments that are unwelcoming to women.

This type of discrimination is undoubtedly still occurring in some workplaces but is best dealt with at the source. The proposed legislation will do nothing to eliminate these barriers as it encourages women to stay in female-dominant industries.

If anything, we might expect more discrimination against women. If having a majority of female employees puts employers at risk of expensive pay equity disputes, would it not be rational for them to try to hire more male employees?

Gender equality in the workforce is important. Identifying and eliminating any remaining barriers to women’s career success is a worthy goal.

But outcomes of policy rarely obey stated goals. At worse we risk following Ontario and implement rules that create a costly legal mess that offers no discernible benefit to women workers.

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