Gender inequality: pay gaps also exist between companies

In Europe, the pay gap between men and women has halved since the end of the 1990s. However, over the last few years this trend has not continued. A team of researchers in economics has shown that pay differences between companies largely explain these inequalities.

On 24 October 2023, Icelandic women, including former Prime Minister Katrín Jakobsdóttir, went on strike to protest against the pay gap between men and women, for equivalent jobs and equal skills. Although the country is the world champion in terms of gender equality according to the World Economic Forum's international rankings, the island's women still earn on average 9% less than their male counterparts.

When the Beijing agreements on gender equality were signed in1995, the gender pay gap in the European Union was 27%. Over the course of ten years, it went down from 17.6% to 12.7% in 2021. Progress now seems to be stagnating, with wide disparities between countries. Romania leads the way with 3.6%, while Estonia's gap, although significantly reduced, remains at the bottom of the table at 20.5%. In France, the gap has stagnated at around 15% for the last twenty years. These differences are calculated on an hourly basis and do not take into account part-time work. They can be explained by the role assigned to women in raising children and the impact of motherhood on the development of women's careers.

 

Economists Jan-Luca Hennig and Balazs Stadler attempt to gain a better understanding of these figures using data from the European Structure of earnings survey. They focused on the role of companies in these inequalities. With their article "Firm-specific pay premiums and the gender wage gap in Europe" published in the journal Economica in 2023, they seek to better understand the role of firms and the impact of public policies on gender equality. Centralized wage bargaining, which allows less discrimination against women, reduces differences within companies, while certain family policies reduce differences between companies. 

Differentiating between intra- and inter-company gaps

According to the results of the study, companies contribute an average of 30% to the pay gap in the European Union, although this varies widely from country to country. Within this 30%, the researchers chose to differentiate between two types of gap. The difference in pay between men and women within the same company is known as the "intra-company" pay gap. It can be reduced through pay negotiations or, at national level, through anti-discrimination policies. The second type of gap is the difference in pay between companies that hire mainly men and those that hire mainly women. This 'inter-company' gap can be reduced by other measures, such as teleworking or family policies encouraging women who have had children to return to work.

According to the researchers, inter- and intra-company differences contribute equally to pay inequalities, but their evolution follows different trajectories. Between 2002 and 2014, the intra-company gap halved, making a significant contribution to the reduction in the overall average pay gap, while inter-company inequalities stagnated. 

This trend suggests that public authorities should also focus on inter-company differences to reduce inequalities. However, these results vary from country to country. In Eastern European countries, it is the intra-company pay gap that has the greatest impact on inequality, while in Germany, the UK, France and the Netherlands, the greatest effect comes from the inter-company disparity.

The reduction in pay differentials within the same company, for equivalent jobs and equal skills, is due in particular to the European and national anti-discrimination policies that have been in place for the last twenty years. At a European level, for example, the 2004 and 2006 directives have encouraged equal treatment between the sexes1. More recently, European countries have signed agreements on pay transparency. 

• 1Directive 2006/54/EC of the European Parliament and of the Council of 5 July 2006 on the implementation of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation (recast), EP, CONSIL, 204 OJ L.

The correlation with family policies

As regards the stagnation of disparities between companies, women are still over-represented in certain low-income sectors and under-represented in the highest-paid sectors. For example, in 2021, women occupied an average of only 34.7% of management positions in the EU. This phenomenon can be explained by the fact that it is more difficult to return to work after having a child, which means fewer promotions.

To analyse this effect, the economists divided the cohort into four age groups: 20-29, 30-39, 40-49, 50-59 and 60-65. They find that younger employees suffer more from the intra-company pay gap. After the age of the first child - 29.4 years on average for European women — it is the differences between companies that become more important. At the end of the career, the differences diminish, but remain higher than at the beginning. These figures support the idea that female workers suffer discrimination at the start of their careers, and then face obstacles in finding lucrative employment once they have started a family. This is particularly true for Germany, Spain, the Netherlands, the UK and Cyprus, but less so for Norway, Sweden, Hungary and Estonia - countries with more proactive family policies.The researchers then studied the correlation between wage differentials and family policies. These range from national expenditure as a percentage of GDP, family allowances, length of maternity and paternity leave to the percentage of children in nurseries. The impact of financial allowances and childcare places is positive in terms of reducing inequalities. Financial assistance and service offers have a particular impact on the age group from 30 to 39 over-30s, the average period at which people have their first child.

In Europe, maternity leave lasts between 2 weeks (Sweden) and 58 weeks (Bulgaria). Paternity leave is shorter, with a minimum of zero days in Germany and a maximum of 16 weeks in Spain, where it is equal to maternity leave. According to a recent study, the longer maternity leave lasts, the greater the pay gap, especially for women in their thirties2. The opposite effect is observed for paternity leave, with pay inequalities narrowing as leave increases.

• 2Grimshaw D., Rubery J., 2015 «The motherhood pay gap : a review of the issues, theory and international evidence», International Labour Office, Inclusive Labour Markets, Labour Relations and Working Conditions Branch. - Geneva: ILO, 2015

Decentralising wages

The researchers also show that centralising wage bargaining reduces reduces the disparities, among others driven by discrimination within companies. This is the case, for example, in the industrial sector in France and Belgium, where the unions negotiate wages for the entire sector. A government that is more involved in wage negotiations, for example through minimum wages or direct negotiations with companies, also reduces the pay gap. This is particularly true of Norway and Finland.

In contrast, in recent years European countries have tended to decentralise wages and make them more flexible, with collective agreements negotiated individually by companies. In Spain, since 2012, company collective agreements have taken precedence over higher-level agreements. According to an Australian survey carried out in 2020, women earn up to 37% less than men in jobs that are paid by the task which are not covered by collective bargaining agreements and are expanding rapidly. 

In the future, economists want to study the profiles of companies that pay women low wages: are they companies that make little profit and therefore pay their female employees less? Or are they companies that have little competition in the labour market and can afford not to share their profits by paying very little? A better understanding of the reasons why women work in companies that pay less than men is essential if we are to take effective action to reduce gender inequality.