Women in Work – The £85 billion prize from closing the gender pay gap

16 March 2017

By Yong Jing Teow and Shivangi Jain

Last month we published our fifth annual update of the PwC Women in Work Index, which shows a continued improvement in the UK’s performance in terms of empowering the female workforce. Our Index combines five key indicators of female economic empowerment: the equality of earnings with men; the proportion of women in work, both in absolute terms and relative to men; the female unemployment rate; and the proportion of women in full-time employment.

The Nordic countries, particularly Iceland, Sweden and Norway, continue to occupy the top positions on our Index. The UK improved slightly, moving from 14th to 13th position out of 33 OECD countries. The UK’s improvement has largely been driven by improving economic conditions, which have led to greater employment opportunities for women, as well as men.

While these improvements are a step in the right direction, there is still a long way to go to achieve gender parity in the workplace in the UK. The median gender pay gap of 17% in the UK shows that there is still plenty of scope for improvement: it would take around two decades for the gender pay gap to close at current rates of progress.

What are the causes of the pay gap in the UK? Although direct discrimination (women getting paid less than men for the same work) is a factor, it does not fully explain the gender pay gap. A study by Glassdoor showed that once the unadjusted pay gap (estimated to be more than 20% using their own data) is controlled for other factors that influence pay such as occupation, education, experience, location and company, the resulting adjusted pay gap falls to around 5%.[1]

This shows that although direct discrimination is nevertheless an important factor driving the pay gap, other factors are also at work, namely the lack of female representation in higher paying jobs and industries.

A closer examination of work patterns in the UK shows that there are two main (and related) reasons explaining the pay gap. Firstly, the work-life patterns of men and women differ – women tend to spend more time out of the workforce to care for their families, and taking time off work inevitably means missing out on pay progression.[2] Women who then rejoin the workforce often find it difficult to get back on the ladder and return to roles that are commensurate with their skills and experience. This is consistent with our study on women returners and the findings of the Women and Work APPG annual report published earlier this year.[3] Secondly, women in the UK are more likely to work in lower-paying sectors (such as health and social care) and lower-skilled (and hence, lower-paid) occupations. These two factors combined explain over half of the pay gap, and reinforce one another: differences in work-life patterns, coupled with the lack of affordable childcare, exacerbates the degree of occupational segregation, as women becoming even more likely to enter low-paying work that offer greater flexibility.

These patterns also go some way towards explaining the differences in the pay gap across regions: the biggest pay gap is observed in the West Midlands where the gap is 21%, largely because the majority of women work in low-paying sectors such as wholesale and retail trade, and health services while men work in higher-paying sectors such as manufacturing. The smallest gap is observed in Northern Ireland where it is 6% - this reflects the high share of women working in public administration that has relatively high pay and a small gender pay gap.

Figure 1: Gender pay gap across the UK

WiWiblogimage

Source: PwC analysis using ONS data

Both policymakers and businesses play an important role in taking proactive action to address the root causes of the gap. Public policies that increase the availability of affordable childcare can help narrow the gap by enabling greater female participation in the workforce.

Business action can include providing opportunities for flexible and part-time working to enable both female and male employees to manage their family commitments around work. Ensuring that female employees are given equal opportunities to succeed and climb the career ladder would not only help address the pay gap challenge but can also help businesses better leverage their female talent and improve their own pipeline of female leaders.

The UK is making progress. From 2017, businesses with 250 or more employees are required by law to report the pay gap. Our own experience of disclosing our own gender pay gap (and being one of the earliest in the industry to do so) has driven greater accountability to take proactive action to address it.

There is still a long way to go in creating a truly diverse and equal workplace. To reinforce the business case for encouraging diversity at the workplace, our analysis has identified substantial economic gains from closing the gap: achieving pay parity in the UK could increase total female earnings by almost £85 billion. The multiplier effects from this additional spending could generate an even larger boost to GDP. With such a large prize on offer, there is a clear incentive for governments and businesses to work together to address the deep-rooted causes of the pay gap.

For details on our analysis and full report, please go to our website: pwc.co.uk/womeninwork

[1] Glassdoor (2016) “Demystifying the gender pay gap: evidence from Glassdoor salary data”.

[2] IFS (2016) “Gender wage gap grows year on year after childbirth as mothers in low-hours jobs see no wage progression”.

[3] PwC (2016) “Women returners: The £1 billion career break penalty for professional women” and Women and Work APPG (2016) “Women Returners: Annual Report 2016”.

 

Yong Jing Teow and Shivangi Jain
Tel: 020 7804 4257 or 020 7213 4596

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