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09 July 2018

Women in Work Index – what is driving the OECD gender pay gap?

The sixth annual update of the PwC Women in Work Index shows that gains in female economic empowerment have been made across the OECD countries, but the pace of change remains gradual. 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.

As in previous years, Iceland, Sweden and Norway remain the top three performers. The largest movers – Poland and Hungary – both saw a rise of three ranks with strong improvements in female participation in the labour force. Most countries have also achieved gains in absolute terms. For example, Spain saw one of the largest annual increases in its index score, due to an increase in the share of women working full-time, while the pay gap and female unemployment has fallen. Looking at longer-term changes since 2000, United States, the largest OECD economy has fallen quite significantly from 9th to 21st position. This is mainly driven by falling participation in the labour market and rising unemployment amongst women over the past decade.

The UK fell from 14th position to 15th as improvements in female labour market conditions were outpaced by other OECD countries. In particular, the UK’s pay gap (defined as the difference in median earnings between males and females) is closing only very gradually and is still slightly above the OECD average, while little progress has been made to improve female full-time employment. There are significant regional variations within the UK. London continues to perform poorly with the largest pay gap, mainly driven by its relatively higher concentration of businesses with high pay gaps such as financial services and professional services.

This year, we conducted an econometrics analysis to investigate the drivers of the gender pay gap across the OECD countries, using a dataset of 35 countries over 16 years. Our results showed that much of the pay gap is explained by structural factors, such as the tendency of women to work in lower paid services sectors or in part-time work and taking time off from work to care for the family, which remain persistent over time. We find that increased government spending on family benefits, such as childcare, can help reduce the pay gap as this can help support women returning to or staying in work. Countries with a larger share of female employers also tend to have lower gaps, which could potentially suggest that female entrepreneurship has a positive impact on gender equality in the workplace.

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Our analysis points towards the important role that government policy can play in creating a more gender neutral workplace. Firstly, enhanced social support for childcare and family support can boost female participation in the workforce, particularly for full-time roles. We also found that generous lengths of paid maternity leave can worsen the pay gap and make it larger. This somewhat surprising result suggests that longer leave periods mean women spend more time outside of work, which could negatively impact their future earnings potential. Policies such as Shared Parental Leave (SPL) aim to correct this by levelling the playing field between parents, and encourages the sharing of caring responsibilities so that women can return to work. Some countries, such as Sweden, have introduced non-transferrable “use it or lose it” quotas for fathers and economic ‘bonuses’ for families that divide parental leave more equally.

Businesses also have a big responsibility to provide both men and women equal opportunities to reach their full potential at work and close the pay gap. The recent introduction of mandatory pay gap reporting in countries such as the UK and Australia helps push businesses in this direction. Early disclosures reveal how far we have to go to close the gap, but greater transparency will hold companies accountable to take action and gradually motivate change. Furthermore, there is a serious need to “fix the leaky pipeline” to improve female representation in senior positions, such as providing more flexible opportunities for women in higher-paying and higher-skilled roles, or encouraging women to return to work following career breaks with “returnship” programmes. This can help build a pipeline of female leaders, with clear benefits: evidence shows that gender-diverse boards representing diversity of views can improve business performance.

The gains to closing the gender pay gap are substantial – US$2 trillion for the OECD – a massive prize to be achieved.

Authors:

Yong Jing Teow 
Economist
Tel: +44 (0) 207 804 4257 

Saloni Goel 
Economist, PwC United Kingdom 
Tel: +44 (0)7730 596332

Swati Utkarshini 
Economist, PwC United Kingdom 
Tel: +44 (0)7843 370811

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