THERE IS NO STATISTICALLY RELIABLE EVIDENCE ON GENDER PAY GAP-ONLY MISLEADING HEADLINES

1.Introduction

 The public perception is, that there is a well-established gender pay gap. This perception is often based on ‘carefully’ executed surveys, which show that women earn less than men. However, these surveys often do not consider the level of employment, or industry and firm characteristics. Hence, they compare apples with oranges. People also base this proposition on casual evidence like, female tennis players’ prize money is or has been lower than men players’ prize money. They ignore the fact that the prize money differences simply reflect the fact that, female tennis games are three setters, whilst men game are five setters. The longer the games are the greater the advertising revenue they can generate. Hence equal prize money simply implies that men players subsidise the prize money of female players.

The contention of this blog is to show that when gender pay-gap is carefully researched, there is no evidence that females are paid less than men for the same job or in the same industry.

2. Some casual, misleading descriptive ‘evidence’ on the gender pay gap

There are a lot of descriptive statistics which show a differential between male and female weekly, monthly or yearly earnings. For example, the latest report by the Australian Government’s Workplace Gender Equality Agency’s (WGAE) suggests that there has been a 13.9% gap between male and female earnings in 2019(https://www.wgea.gov.au/data/fact-sheets/australias-gender-pay-gap-statistics-2020). These descriptive statistics are not based on sub samples of men and women in the same profession or in the same position, rather based on overall averages of the workforce.

However, the report offers a number of plausible explanations for these gaps:

“The gender pay gap is influenced by a number of factors, including:

  • discrimination and bias in hiring and pay decisions
  • women and men working in different industries and different jobs, with female-dominated industries and jobs attracting lower wages
  • women’s disproportionate share of unpaid caring and domestic work
  • lack of workplace flexibility to accommodate caring and other responsibilities, especially in senior roles
  • women’s greater time out of the workforce impacting career progression and opportunities.” (WGEA, 2020 Report).

However, despite of the above caveats by the authors of the report, the left leaning media and feminists interpret  this and similar descriptive statistics as evidence of sex discrimination at the work place(https://www.abc.net.au/news/2019-08-22/gender-discrimination-driving-a-pay-wedge-between-men-and-women). After all these types of ‘evidence’ support their narrative.

Fortunately, there are some carefully executed studies, which offer rigorous explanations for the observed pay gap.

3. The scientific evidence shows that there is no gender-based pay gap

 One of the first scientific evidence that shows that there is no gender-based pay gap, is a paper by Bugeja, Matolcsy and Spiropoulos (Journal of Corporate Finance,2012, Vol18-4). These researchers have looked at 210 female CEO’s pay in the US and compared it to 210 male CEOs’ pay for the period of 1998-2010. They found no evidence of gender-based pay gap after controlling for industry and firm characteristics, such as size, profitability, growth opportunity and risk.

There is an important follow up of the above research by three outstanding female academic researchers, M.E. Carter, F. Franco and M.Gine. They have published a paper in the Journal of Contemporary Accounting Research, 2017, Vol.34-2. These researchers extend the sample to include CEOs, CFOs, COOs, Divisional Executives among other titles. Their research covers the period of 1996-2010 and includes 9,832 female and 15,942 male US executives. They look at different components of executive compensation including salary and equity-based incentives and show, that female executives are more risk averse, hence demand (and get) higher (cash) salaries and lower level of (risky) equity-based compensation than their male counterparts. Hence, they primarily explain the pay gap in terms of female risk aversion. They also find that this pay-gap does not exist amongst male and female CEOs.

As an additional sensitivity test, Carter, Franco and Gine (2017) look at the outcomes, when a senior executive leaves his/her position and it is filled by an executive of the other gender. They found no evidence of a pay gap between the compensation of the outgoing versus the incoming executives.

It has also been debated whether the gender balance of boards leads to a gender-based pay gap. However, this debate completely misses the point. Executive compensations are not set by the Board of Directors, but the Compensation Sub-committee of the Board. Bugeja, Matolcsy and Spiropoulos (2012) looked at the association between compensation committee and CEO’s compensation and found a’ Lehman Sister” effect (results are not tabulated in the paper). Female chairs of this committee lead to higher compensation for female CEOs compared to that of their male counterparts.

4.Key take-aways

It is often asserted that there is a gender-gap between male versus female compensation.

These assertions are based on aggregate descriptive statistics regardless of the economic characteristic and the industry of the firm and the level of employment.

Some of the Workplace Gender Equality Agencies recognise that the above explanations are important factors to consider, when an overall average pay gap is found.

Only the left leaning media attributes the pay differential as evidence to sex discrimination at the work place.

Carefully executed, scientific research finds no evidence of pay differential for CEOs and for lower-level executives the pay differential is driven by female executives’ risk aversion.

The gender composition of the Compensation Committee not of the Board of Directors which is relevant in determining executive compensation. There is some evidence of a ‘Lehman sister’ effect, female chair of Compensation Committees leads to higher compensation for female executives compared to their male counterpart.

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