Why pay equalisation is bad news for women

It's always dangerous broaching a subject when we know you may not like what we write, but as you'll be aware that rarely puts us off.

This morning a couple of news stories caught our eye: "Gender pay gap shows no sign of abating" - news.com.au; and "Bosses to fund parental leave" - news.com.au.

Our initial response to these stories is: why would anyone want to lose their competitive advantage in the workforce?

That's right, if it's true - and statistics suggest it is true - that female employees are generally paid less than male employees then attempts to “close” the gender pay gap have the potential to rob female workers of one of their competitive advantages - that they are prepared to work for lower pay than male employees.

Whichever way you look at it, whether it's employers “exploiting” female employees or female employees having little choice but to accept lower wages, the statistics suggest that female employees as a whole do accept lower rates of pay than male employees.

Again, that's the stats talking.

Therefore it's reasonable to argue that this is a competitive advantage for a potential female employee. That she can undercut a potential male employee by implicitly or explicitly offering her labour services at a lower cost than a potential male employee.

Let's take a look at a chart showing the male and female employment numbers since 1978:

insert graph here

As you can see, employment numbers for both have risen over this time. The number of male employers has climbed by around 50 per cent, however, the number of female employees has more than doubled.

What's the reason for this? Is it due to pay equalisation? Or is it due to fewer restrictions on women entering the workforce?

Or, is it because employers are able to pay female employees less than male employees? Giving female employees a competitive advantage over their male counterparts.

The problem with the idea of forcing pay equalisation on employers is that it's more likely to create a greater inequality of pay or cause a shift of employment.

Let's think about it this way. What does an employer want from his or her workforce? Well, they want their employees to produce as many products or sales for them as possible in return for paying as low a wage as possible.

At some point an employer will discover an equilibrium rate of pay at which he or she knows that employees will be happy with. In all probability this will entail different rates of pay for male and female employees - the numbers say that's true.

But make no mistake, the employer doesn't set these rates because they are an evil capitalist, they do so based on experience. And it's likely - as the statistics show - that female employees are prepared to accept lower wages in return for their labour.

It's fair to argue then, that as more females have made themselves available to enter the workforce in the last 30 years, employers have hired more females based on the ability to pay them a lower wage than they would pay for a male employee who is doing the same job.

Again, that's not us saying that, the statistics say it is so.

Now, here's the problem with pay equalisation and paid maternity leave. It robs the female employee of their competitive advantage.

When a female is applying for a job, whether we like it or not, one thought process going through an employer's mind is whether the potential employee could leave to have a family. And as you know, when a child is born, overwhelmingly it's the mother not the father that forgoes employment to care for the child.

Of course, it's against the law for the employer to ask if the female candidate is planning to have a child, so they have to guess. And because they don't know for certain they may choose to take out an insurance policy by offering the female candidate a lower rate of pay.

If the employer can get away with paying a female job applicant a lower wage than a comparable male applicant then maybe the employer may take the risk. But what if there is now pay equalisation?

Will the employer still take the risk if he or she believes there's a chance the female employee could ask for time off to look after a new family? Prior to pay equalisation, the employer could have factored that in to the lower wage, but with equal pay the employer can't do that unless the wage rate of male employees is lowered to the same level as female employees.

And that creates another problem. Our guess is that it qualifies as a social problem.

Again, whether you like it or not, many male employees are likely to think it “unfair” if they're getting paid the same wage as a female employee who takes six month's maternity leave, or is away once a fortnight to take care of a sick child.

Or if you want more stereotypes - doesn't work on the weekend, or in the evenings, or has to pick the kids up from school, etc ...

We all know that's a stereotypical view of the female employee, but the fact remains that the majority of male employees are likely to have those thoughts, even if they're new age metrosexuals.

The consequent knock-on effect of pay equalisation is that it could harm the employment prospects for prospective female employees. How so?

For a start it could mean fewer female employees are employed by businesses. If there is still the perception that male employees expect a higher rate of pay to female employees then it's possible that employers will be less inclined to employ females on the same wage.

The other potential knock-on effect is that male employees shift employment to workplaces that offer higher wages, pushing out higher paid female employees.

We note an article from The Age newspaper last year, "Male teachers shifting schools". According to the article:

Educators were perplexed about the drift of male teachers to non-government schools ... Australian Education Union president Angelo Gavrielatos was equally puzzled ...

Reasons they give is that perhaps male teachers are being enticed to private schools at the expense of public schools.

Again, we have no idea whether that's true or not. The article quotes Independent Schools Council executive director Bill Daniels, "It's not a concerted effort by us and I can't imagine why the figures would be that way".

Well, one potential reason is the phenomenon we've mentioned above. That male employees are conditioned to expect a higher wage than female employees. If the state schools system mandates equal pay for male and female teachers, and male teachers consider it to be “unfair” then surely there's a greater chance that male teachers will seek higher paying jobs.

One way of doing that is to seek employment in the private education sector where wages are usually higher.

In other words, pay equalisation in one industry - public schools - has a knock-on effect of increasing the number of male employees in another industry - private schools.

Therefore we can also suggest that a further effect is fewer higher paying jobs for female teachers in the private sector as they are facing increased competition from male teachers.

Look, we don't have enough space to cover off every scenario here. Naturally, there would also be circumstances where employers prefer to employ more women and fewer men, and are therefore able to set the equal pay level closer to the level acceptable by female employees rather than male employees.

But either way, the overall effect isn't a bumper payday for women employees.

The fact is, like every other attempt at market manipulation by governments, at the initial point of impact the appearance is that the policy has been successful. Yet as soon as you look at the collateral damage it becomes apparent that many others have suffered as a consequence.

Quite possibly, this could be the most unpopular article we've ever written for Money Morning - although that comment itself could be seen as patronising! - but the reality is that pay equalisation and paid maternity has to be paid for from somewhere.

One way is an attempt by businesses to charge higher prices. But this is difficult, as businesses would already charge higher prices if they thought they could get away with it. The fact businesses haven't raised their prices already suggests their ability to do so is limited.

Therefore the cost has to be born elsewhere. And the only other “elsewhere” is in job losses or a net cut in wages.

There's little doubt that pay equalisation and paid maternity leave won't create a new dawn for women in the workforce. Odds are it will do nothing more than lower the overall job opportunities for women in the higher paid jobs, and consequently lower the pay in the lower paid jobs.

We could be wrong, but it's worth thinking about.