It will promote gender equality without the need to positively discriminate
Article by Laura Nuñez Letamendia is Professor of Finance and the Director of the Center for Insurance Research at IE Business School
Originally published in Spanish by Cinco Dias (03.13.2018)
Advocating for wage transparency is advocating for equality between men and women, without the need to positively discriminate. Why is gender wage transparency not part of corporate social responsibility policies?
The European Statistical Office, Eurostat, calculates what it calls the unexplained gender pay gap, that measures the difference in the salaries of men and women not justified by qualifications or job position, which constitutes a part of the so‐called wage gap. In this article I limit myself to analyzing the effects of this component, which is indisputable, without considering the other elements that contribute to the so‐called wage gap.
This unexplained gap was assessed in 2014 (most recent data as of March 2018) at 11.5% for the entire European Union. According to the Global Wage Report (2016‐ 2017) by the International Labor Organization (ILO), wage discrimination between men and women increases gradually as a function of career path. For example, according to the ILO, whereas, the overall gender pay gap is 20%, average difference in salary between male and female CEOs reaches 40%.
Thus, it is clear that significant wage discrimination does exist between the sexes even when they perform the same functions and have the same qualifications. Moreover, this discrimination increases as women ascend the professional ranks. The seriousness of this unexplained salary gap goes far beyond what is initially suggested by these data. Indeed, this wage discrepancy reflects only the tip of the iceberg regarding the issues women face with a professional context. Further evidence of gender-based discrepancies within the EU are revealed by data indicating that women occupy only 33% of managerial positions, compared to 67% occupied by men. This is particularly surprising in light of the fact that 44% of women between 30‐35 years of age are university educated compared to only 34% of men within this age range (Eurostat data, 2016).
Importantly, this unexplained salary difference, which persists year after year with little change, implies a substantial reduction in the cumulative income of the workers, earn over the course of their working life, relative to which, in turn, they reduce their relative ability to save. For example, consider male who earns an initial salary of 25,000 € (gross) revalued at a rate of 2% (similar to inflation over 40 years of working life), in the context of a salary gap of 11.5%. These figures would translate into a 300,000 € decrease in lifetime earnings for a woman, taking into account a capitalization rate of 3% for that differential (very reasonable for an inflation of 2%). If the initial salary were € 35,000, (gross), that difference would be € 425,000.
These discrepancies in lifetime earnings increase in their absolute value as salaries rise. Furthermore, as previously mentioned, statistics show that this wage gap progressively widens as women climb the professional ladder, so this effect is even more pernicious. Returning to the previous example, if both genders were to receive a promotion after 10 years that came with a 30% increase in salary and a wage gap of 23% from that point onwards, this would increase the difference in lifetime earnings to 660,000 € and € 925,000 for starting salaries of € 25,000 and € 35,000, respectively.
Although women have been fighting silently against this situation for decades, little progress has been made. What reason is there to remove these unfair wage differences immediately? What is the excuse is there for companies to urgently implement plans to ensure salaries are transparent in this area? Salary transparency is not a controversial topic. It does not fail within the so-called policies of positive discrimination that some sectors view unfavorably. Is the implementation of this measure something that all of society would agree on, or not? Indeed, given that salary transparency measures have already been implemented within the area of remuneration for senior management and boards of directors in listed companies, this step can also be taken for men and women at all levels within companies.
While it is true that they have their limitations, they represent in a fairly reliable way that they try to measure. Definitely, across a variety of domains (e.g., price and production indices, unemployment and labor-cost statistics, etc.), the utility of statistics in approximating reality is unquestioned. Governments rely on statistical indicators to make decisions in different areas (e.g., economic, monetary, labor policy, etc.). Why are they not applying this same reliance when it comes to acknowledging the validity of data indicating serious discrepancies in wages between the sexes? If they are, it seems to lack the urgency and political will that the situation requires and that women, who make up 50% of society, deserve.
The EU has endorsed gender wage transparency since 2014 as shown by the Recommendation of the European Commission 2014/124 / EU on strengthening the principle of equal pay for men and women through transparency, which claims to the Member States that encourage the adoption of salary transparency policies in companies. Companies alone are not going to implement these measures, as they did not with those related to the disclosure of the remunerations of top management. The governments, which must ensure non-discrimination, are the ones that have to make compulsory and enforce this transparency, and the clamor of the demonstrations of March 8 2018, can not be indifferent to them.