The gender pay gap in the UK

Presenter: Monica Costa Dias, Institute for Fiscal Studies

The past four decades have seen a strong narrowing of the gender wage gap in developed economies. This trend has been accompanied by an equally strong convergence in employment rates, working hours, occupational choice and educational attainment (where women overtook men). Yet, and despite continued policy efforts to eradicate discrimination in employment opportunities and the wage setting process, important differences still persist. Moreover, convergence has now stalled for at least 10 years, and this brought back a hot public debate on gender differentials in wages and job opportunities. In this paper we investigate the underlying drivers of the gender wage gap in the UK. The existing literature has emphasised three potential key sources of the pay differentials: (1) During their working life, women spend more time out of paid work and in short working hours than men do, which may permanently affect their productivity on the job through a consequent loss of working experience; (2) Women compete less than men do, and hence tend to have a weaker bargaining position on the job; and (3) Women prefer jobs that offer compensation in forms other than wages, including flexible working arrangements or childcare facilities. Using the BHPS data, we investigate empirically the association between these mechanisms and the evolution of wage differentials over the course of life. In particular, we look at how they interact with childbirth and childrearing, and its differential impacts on the careers of men and women. We do so conditional on education, to deal with the raise in education attainment that happened over the recent past particularly among women, and control for its strong association with working patterns and career progression. We then formalise our findings in a model of human capital formation, career choices and job search to disentangle the relative importance of these mechanisms and study their policy implications.