Briefing Note (BN223)

Wage progression and the gender wage gap: the causal impact of hours of work

Date: 05 February 2018
Authors:
ISBN: 978-1-911102-78-6

In the early 1990s, average hourly wages were almost 30% lower for women than for men. The gender wage gap has come down, but it remains at around 20%. There are lots of reasons for the scale and persistence of this gap, but new work, funded by the Joseph Rowntree Foundation shows that one important factor is that mothers spend less time in paid work, and more time working part-time, than do fathers. As a result, they miss out on earnings growth associated with more experience.

Key findings

  • Differences in hourly wages between men and women remain substantial, despite some convergence. The hourly wages of female employees are currently about 20% lower than men’s on average, having been 23% lower in 2003 and 28% lower in 1993.
  • The gap has not been falling among graduates. Only among low- and mid-educated individuals has the gap in average wages between male and female employees shrunk over the past two decades. The other driver of a falling overall gender wage gap has been an increase in the education levels of women relative to men.
  • The gender wage gap widens gradually but significantly from the late 20s and early 30s. Men’s wages tend to continue growing rapidly at this point in the life cycle (particularly for the high-educated), while women's wages plateau.
  • The arrival of children accounts for this gradual widening of the gender wage gap with age. There is, on average, a wage gap of around 10% even shortly before the arrival of the first child. But this gap is fairly stable until the child arrives and is small relative to what follows: there is then a gradual but continual rise in the wage gap and, by the time the first child is aged 20, women’s hourly wages are about a third below men’s.
  • The gradual nature of the increase in the gender wage gap after the arrival of children is similar to the gradual accumulation of differences in labour market experience. A big difference in employment rates between men and women opens up upon arrival of the first child and is highly persistent. By the time their first child is aged 20, women have on average been in paid work for three years less than men and have spent ten years less in full-time paid work (defined here as more than 25 hours per week).
  • Not working full-time tends to shut down wage progression. This has an especially large impact for more highly educated women, as they would otherwise have seen the most progression. For example, a woman who has been in full-time paid work for seven years before childbirth would, on average, have her hourly wage boosted by a further 6% from an additional year of full-time experience if a graduate, compared with just 3% for those with no more than GCSEs. Switching to part-time work, meanwhile, would on average lead to negligible progression in hourly wages. 
  • Gender differences in hours of paid work do contribute substantially to the widening of the gender wage gap after childbirth due to their cumulative impact on hourly wages via labour market experience. Gender differences in rates of part-time and full-time paid work account for approximately half of the widening of the gender wage gap over the 20 years after the first child in a family is born. Most of this effect comes through women's greater propensity to work part-time after childbirth, rather than differences in employment rates per se.
  • But differences in the build-up of labour market experience after childbirth still leave a significant chunk of the gender wage gap unexplained. By the time the first-born child is aged 20, the difference in average hourly wages between men and women is about 30%. Of that gap, around one-quarter already existed when the first child arrived. Of the remaining three-quarters, around half is due to factors other than differences in rates of part-time and full-time paid employment after childbirth. Previous research suggests those other factors could include women being less likely to work in more productive firms, less likely to successfully bargain for higher wages within a given firm, and more likely to enter family-friendly occupations over high-paying ones.
  • Graduates are different: more of the graduate gender wage gap is the result of differences in labour market experience. This makes sense given that experience and wages are most strongly related for the highly educated. Looking at the gender wage gap when the first child is aged 20 just among those educated to degree level, less of the gap already existed when the child was born (around one-seventh), and most of the gap is due to differences in rates of full-time and part-time experience that emerged after childbirth.

Summary

Reducing differences in wages between men and women is high on the political agenda, as evidenced by the quotations above. Understanding these differences is important not only from the point of view of gender equality per se, but also for how best to address low pay and a lack of wage progression more generally. Poverty is increasingly a problem of low pay rather than lack of employment. The proportion of people in paid work has reached record levels, with female employment having risen especially quickly over the last 25 years, and two-thirds of children in poverty now live in a household with someone in paid work. Understanding the wage gap between men and women is important in its own right, but all the more so now that so many families are left in poverty as a result of low wages.

In principle, there are many reasons why the wages of male and female workers might be different: to name a few of the possibilities, they could have different levels of education or labour market experience; they could be in different kinds of jobs offering different balances between financial benefits (such as wages) on the one hand and other benefits (such as flexibility in hours) on the other; they could be working in different local labour markets, with different degrees of competition for workers between employers, putting different amounts of upward pressure on wages; they could bargain differently over their wages; or there could be outright discrimination. The potential underlying causes of those differences are also wide-ranging. Men and women can make choices about their jobs and careers, which will depend on their preferences; but they can also face different constraints. For example, the division of childcare responsibilities within the home can clearly shape the kinds of jobs and career choices that are open to different members of the household. 

It would be very difficult for one study to disentangle robustly all of these mechanisms simultaneously – or at least, that is beyond the current frontier of social science. But making progress on these questions is crucial for knowing how public policy should best respond. This briefing note provides an accessible summary of a new IFS working paper on this topic. The main contributions of the paper are: to isolate the causal role of full-time and part-time experience in determining the wages of men and women; to draw out the implications for what these experience differences can and cannot explain about the gender wage gap over the life cycle; and to examine how this differs for different groups of men and women (in particular, the low- versus high-educated). This exercise does not reveal why the experience differences between men and women arise in the first place. These differences may themselves be caused by other inequalities, such as social norms towards unequal division of childcare or other home responsibilities. But by obtaining robust estimates of what can and cannot be explained by experience differences – however they arise – we can provide a sense of scale for how much of the gender wage gap policymakers could reasonably expect to tackle, were they to focus on factors that can affect the build-up of labour market experience.

The role of experience in paid work – given its association with wages – is an oft-discussed driver of the gender wage gap. But studies typically suffer from a methodological problem: people with different levels of labour market experience may be different from each other in all sorts of other ways that are difficult to control for, meaning that researchers risk bundling up the actual causal impact of experience with the impacts of other factors that also affect wages or wage progression. In the new working paper, we employ a technique to get around this problem and identify the impact of labour market experience in driving the observed gender wage gap.

The structure of this briefing note is as follows. In Section 1, we set out the context of wages for male and female workers, how they differ according to education level and how the gap has evolved over time. In Section 2, we show how differences in wages between men and women evolve over the life cycle, and relate this in a descriptive way to career patterns and the presence of children. Most of these first two sections are essentially updates of part of a previous IFS briefing note, published in 2016, which was the first output on the gender wage gap in this research programme and which set out some of the basic facts about the topic. In Section 3, we turn to our new estimates of the causal role of experience in determining the gender wage gap. We draw our conclusions in Section 4.

The analysis uses three large-scale UK data sets: the Labour Force Survey (LFS), the British Household Panel Survey (BHPS) and Understanding Society (USoc). Readers interested in the details of the data used, and the methods employed, should see the accompanying IFS working paper, which sets these out fully.