Equal Pay for Work of Equal Value
By Helen Hughes

Moving toward, or away from, wage justice for women?

Toward the end of 1996, the New South Wales Labor Council and the National Pay Equity Coalition (composed of the Women’s Electoral Lobby and the Association of Business and Professional Women) began to pursue ‘equal pay for work of equal value’ through the NSW arbitration system. It was argued that although equal pay for equal work has been so well implemented that Australia is leading industrial countries in reducing the gap between women’s and men’s earnings, Australian women had, nevertheless, not achieved remuneration justice.

The case was twofold. In predominantly women’s occupations, it was claimed that the work done by women was undervalued compared to men’s work in necessarily dissimilar occupations. It was suggested that industry-wide inquiries should be held using the comparative worth methodology to determine the value of women’s work in comparisons to men’s work.

The actual reasons why women earn less than men are very different to those claimed by the Labor Council.

Although the ratio of women’s to men’s earnings in Australia improved dramatically in the early 1970s and has continued to rise, it has not reached parity. For full-time workers, women’s hourly earnings reached 90 per cent of male full-time hourly earnings at the end of the 1980s. The average award rate for women was 94 per cent of the male award rate. Average female earnings were a little over 80 per cent of average male earnings. Australia was, however, level with Denmark, France and Norway, and only exceeded by Sweden (90 per cent) among industrial countries in the narrowness of its female-male pay ratios (Gregory 1998).

The differences in male and female earnings are mainly accounted for by differences in men’s and women’s positions in the labour force.

Labour force differences

The participation of women in the labour force has risen rapidly since World War II from 33 per cent in 1964 to 51 per cent for unmarried and 54 per cent for married women in August 1997. This is still well below the 72 per cent men’s participation (Table 1). Women’s work participation rates in Australia are low compared to countries such as Sweden where participation rates are 70 per cent.

                        Source: ABS Labour Force, Australia, August 1997, Catalogue No6203.0, Table 1

Some of the reasons for the differences in labour force participation are traditionally and socially based. Women make different choices from men in the trade-offs between work and the nurture of children and families. But the choices also differ between low and middle and high socio-economic areas. In low income socio-economic areas, poor education and training result in low earnings compared to child-care costs. Women have little choice but not to work, particularly where their English skills are limited or where they are heads of single parent households.

Women tend to break or reduce their work participation during their child nurturing years. Work participation by unmarried women is, however, lower than by married women, because high numbers of young women are in full-time education. The numbers not in the work force include unmarried women who are heads of single households.

Some women, with good education and training backgrounds, mainly from middle and upper income socio–economic areas, have managed to enter new occupations such as tourism, human resource related activities and computing. They have been able to train on the job and thus benefit from skill loadings, promotion, seniority and performance based high earnings. These new skilled occupations are not subject to the arbitration framework. Relatively high remuneration packages have replaced award earnings. Such recent trends contribute to the convergence of earnings by women and men under 30 (Wooden 1998) and augur well for future female to male earnings ratios. Escaping from arbitration intervention has been highly beneficial to these women.

Married women report low unemployment experience (5.3 per cent), in part because married unemployed women do not always report that they want to work when they do not have a job. Their choice balance tips in favour of nurture. Unmarried women, however, have a much higher unemployment incidence (12.2 per cent) than men (8.7 per cent). High unemployment suggests that in some of the occupations in which women are concentrated, wage rates are too high to clear the market. Lower wages in these circumstances could, though would not necessarily, reduce women’s unemployment.

High unemployment is particularly serious for young women. In February 1998 women not in education, aged 15 to 19 years, had unemployment rates of 25·9 per cent compared to 22 per cent for men of that age. For women who leave school without completing year 12 and have no further education, learning on the job is the principal road to permanent work. Poor employment experience for young women often means a lifetime of low skilled and intermittent employment and low income levels. For these women improving productivity through effective education and training on the job is likely to be the only route to higher employment. Raising wages would deprive them of employment opportunities.

Not all women in the work force are disadvantaged. Some are high income earners. Highly educated and trained women in two parent (and even in some single parent) households can afford childcare. Their husbands often work in relatively highly paid and flexible conditions. Such women have greater choices in managing their work force participation. This explains why women from middle and upper socio-economic areas have higher work participation and lower unemployment rates than women from low socio-economic areas. It also explains why earning differences between women from low and high neighbourhoods-economic areas are considerable and have been increasing (Gregory and Hunter 1995)

Women tend to leave the work force at an earlier age than men. In part this may be the result of low earnings and low job satisfaction in unskilled occupations. To a large degree it is a matter of choice. Many older women prefer to care for their grandchildren, making it easy for their daughters and daughters-in-law to pursue careers, than working outside the home. The Australian Institute of Family Studies has recently found that 50 per cent of work related care for children aged 5 and under is undertaken by family members (The Australian 22 April 1998). Whatever the reasons, when many men are enjoying peak earnings, many women are likely to have retired from the work force.

Part-time and casual work

The higher proportion of women than men working part time explains a significant proportion of the earnings differences between men and women.

Part–time labour force participation has increased as a proportion of total workforce participation for several reasons. The desire for part-time work changes over the life cycle. High numbers of students work part time. Many married women choose to work part-time for family reasons, but the difference between the proportion of married women working part-time (46 per cent) and unmarried women is surprisingly small.

Part-time work preferences recorded by ABS (1997) indicate that a considerable proportion of women who work part-time do so by choice. The proportion of married women part-time workers wishing to work longer hours is 16 per cent. Only 33 per cent of unmarried part-time women workers wish to worker longer hours. A higher proportion of women from middle and upper socio-economic neighbourhoods than low socio-economic areas not only work, but also work longer hours. Education and skill levels appear to be important determinants of the length of hours worked. Higher earnings make work more rewarding and permit women workers to pay for child and other family care.

The Australian industrial relations system’s imposition of labour market rigidities accelerated the trend toward part-time and casual work. Businesses are prepared to pay higher hourly ‘bundled’ rates for part-time and casual workers than for full-time workers to reduce the considerable compliance costs of ‘unbundled’ wages. Earnings are not affected, but labour costs are reduced, leading to improved competitiveness. Women can fit work into their lifestyle preferences better with part-time than with full-time work. They do not regard such choices as marginal or second rate.

The occupational structure

Table 2 indicates the occupations in which women are concentrated and those in which men are concentrated. Non-market factors have clearly been important in shaping occupational distribution in the past. They still appear to affect entry into skilled manual trades and intermediate production and transport. The total numbers in these occupations are high at some 1·7 million workers. Demand for these occupations remains strong despite the decline in manufacturing because these occupations are needed in many service sectors. These are the most highly paid non-managerial, non-professional occupations. High wage and discretionary rates reflect high skills.

                        Source: ABS Labour Force Australia, August 1997, Catalogue No 6203.0,Table 20

The low proportion of women in skilled trades is a major factor in earnings differences between women and men. Only 11 per cent of tradespersons are women. If tradespersons in such trades as hairdressing and dressmaking are excluded, the ratio drops to 1 per cent. It is also low in the skilled intermediate production and transport category. The situation is only changing at a snail’s pace. Women represent negligible proportions of apprentices and trainees in these areas (Dorrance and Hughes 1996). Women continue to opt for hairdressing, sewing and cooking, which have relatively low skills and low responsibilities, but favourable working conditions.

Market wage setting, albeit modified by the arbitration system, has made allowances for the differences
between various occupations, taking into account skills, responsibilities, working conditions as well as the elasticity of demand for the product or service in question, production conditions and the supply and demand of labour. The issues contained in comparative worth evaluations have been taken into account, but so have other factors. A significant cause of unequal earnings does not lie in wage and discretionary payment setting, but in the absence of women from highly skilled trades.

Attempted comparative worth comparisons between hairdressers and motor mechanics clearly illustrate this problem (Stinson 1998). The question that needs to be asked is why at least 50 per cent of motor mechanics are not women. Women drive cars. When they take their car to be serviced or repaired they are generally met by male mechanics, a large proportion of whom treat women clients as second class citizens when it comes to knowledge about cars. Not only women, but also men, would prefer motor mechanics that are not only well trained, but civil and treat all clients equally. Motor mechanics is becoming increasingly skill intensive, combining electronic with mechanical skills. Electronic engineering is another area which women are not entering. Why? Women use computers, watch television and program videos. Why are the high earning repairers always men?

A professional inquiry into the reasons for women’s lack of access to motor mechanics, electronic engineering and similar trades would make a serious input into raising women’s earnings.

Among clerical and service workers, women are most concentrated in the most advanced category. This category includes the new occupations where wages and discretionary payments are high. The intermediate clerical and service category has the next highest concentration. The elementary clerical and service category has a more even gender ratio, reflecting education and training levels. The number of women in the least skilled, labourers and related workers category, is relatively small. They are mainly cleaners.

An overview of labour force characteristics

The differences between male and female labour force characteristics are considerable. Wooden (1998) has shown that the bulk (98 per cent) of earnings differentials between men and women is accounted for by these differences. Only 2 per cent of the shortfall in women’s earnings is the result of women’s concentrations in female dominated occupations.

To the extent labour force differences between women and men follow deliberate decisions, such decisions must be honoured. Some women want to stay at home to mind their children, to study part-time or for other reasons. They are aware that this will affect their careers and their earnings. Employers cannot compensate the resulting short fall in earnings without raising remuneration above productivity and hence reducing Australia’s international competitiveness. If it is deemed desirable from an equity point of view to compensate women for work participation choices that lead to low earnings or no earnings at all, it has to be done through the tax and social security systems.

History of comparative worth

The comparative worth method of wage setting has a long history against which its utility can be measured. It was the principal tool of determining wage relativites between as well as within occupations in centrally planned economies. Wage rates for all occupations, from janitors to particle-physicists, were centrally determined in countries as large as the Soviet Union and as small as Albania. Wage steps within occupations were also determined by the comparative worth methodology.

The comparative worth wage setting in centrally planned economies was part of the framework that led to the collapse of these economies. Comparative worth wage determinations broke the linkages between remuneration and productivity. Intra occupational and inter occupational differences were the subject of unhappiness and friction that undermined morale and led to endless disputes. Managers who seriously attempted to meet production targets with reasonable quality controls and at reasonable cost, ignored comparable worth determined wages, often at considerable personal risk, to pay workers according to market signals.

The outcomes of comparative worth wage determination were particularly damaging to women. Women in female dominated occupations, whether at the bottom of the wage structure, such as street cleaners, or at the top, such as medical doctors, were paid less than men in the same and similar occupations. A recent study of remuneration of women in the ostensibly reformed township and village enterprises in China, showed that as a result of the failure to reform wage determination, women were paid less than men (Xin 1992).

Labour economists working on centrally planned economies were familiar with these aspects of the comparative worth methodology, but the full implications did not become widely known until the collapse of central planning at the end of the 1980s. Comparative worth thus began to be used in the 1970s in the United States, West European economies and Canada to increase remuneration in female dominated occupations without drawing on the central planning experience. These experiments, and the associated literature, have been reviewed in considerable depth. The comparative worth approach has been notably unsuccessful so that it has largely been abandoned (Brook 1990, Moens and Ratnapala 1992).

Most of the comparative worth method applications to raise women’s earnings have been in the public sector, where commercial criteria are only loosely applied so that the demand for the services supplied can be deemed to be inelastic. Killingsworth (1990) closely studied two major comparative worth applications, the Minnesota State Government Employment and San Jose Municipal Government Employment cases in the United States. In both cases women’s remuneration was increased slightly, but there was also a slight loss of employment in the form of reduced future additions to the labour force. The demand for government services has, however, proved to be elastic. The San Jose case contributed to the agitation for a substantial downsizing of public services in California.

Similar attitudes are developing widely among taxpayers world wide, leading to reductions of public services and corporatisation/privatisation which is also sharply reducing public service numbers. The demand for public services can no longer be regarded as inelastic. It is increasingly considered that public sectors are inefficient because they do not follow market forces. They are often over-manned and consequently have low productivity in relation to earnings and working conditions (including security of tenure). Many Australian taxpayers earning their incomes in the private sector (75 per cent of the labour force) are no longer prepared to support non-market remuneration and working conditions in the public
sector.

Central planning systems showed that the value of work could only be divorced from market considerations with dire results. In the private sector, wages and associated payments have to meet economic criteria if a business is to survive in an internationally competitive environment. Employees must be attracted into an industry, occupation and to a particular employer by the wages and associated payments that make up total earnings.

It is well known that these are not all monetary. The arbitration and legal systems ensure minimum wage rates, maximum working hours and freedom from discrimination and harassment. Workers take other considerations into account, such as physical working conditions, location and the way a business is run.  Some workers are concerned whether it is easy to take a day’s leave when family members are ill, regardless of award entitlements. Can children come to the office during school holidays?  For others, opportunities for promotion are paramount.  For employers, workers’ education, training, experience, the ability to get on with others, initiative and many other factors determine selection.  An economy relies on market forces to maintain its international competitiveness.  Some occupations and industries thrive and expand, while others decline.  The signals are clear that women need better education, training and experience to increase their earnings.  Human capital is becoming an increasing source of wealth.  Many women are taking advantage of the opportunities that are opening up.

The effectiveness of comparative worth in raising earnings for women

Comparative worth is an essentially subjective and arbitrary methodology that leads to worker dissatisfaction. The failure to take market trends into account has led to an inability to achieve its objectives. Supply and demand factors in wage setting are modified by institutional pressures, such as those of trade unions, employers’ organisations and the legal and arbitration systems, but underlying market forces limit the role of such interventions. Where shortages of workers occurred, notably in nursing, wages and earnings have risen appreciably in occupations dominated by women.

Research undertaken for the NSW Treasury clearly indicates that pursuing comparative worth would lead to increasing unemployment (NSW Treasury 1998). Further economy wide modelling by Access Economics confirmed that a higher unemployment outcome was likely (Access Economics 1998). Such unemployment would not be spread evenly throughout the community. It would particularly affect women with low incomes.

Alternative approaches to improving women’s earnings 

Although girls have done well in catching and often by-passing boys in secondary school performance, a considerable group of girls still appears to be disadvantaged in education in low income socio–economic areas. The same is probably true for boys. Such students leave school before year 12, and form a high proportion of unemployed between the ages of 15 and 19. A major educational and social effort in low-income socio-economic areas would improve the lifetime productivity and earnings of women (and men) from such areas. Primary and secondary school reform and associated social support for disadvantaged communities is urgently needed if many of the young people from these areas are not to become long term unemployed and labour force dropouts.

The gravest current discrimination against women lies in barriers to entry into skilled manual trades for women from low socio-economic areas. While the demand for manual trades in manufacturing is declining as the Australian economy moves further toward services, the demand for tradesmen is holding up strongly because of service demands for these and allied skills. If these trades became available for young women, the pressure from women entrants into such occupations as hairdressing would fall. Economic factors would then be likely to increase the earnings of hairdressers. Improved gender distribution among occupations according to education, training and ability would raise productivity Australia wide and hence enable higher wages and earnings to be paid while maintaining competitiveness.

References

Access Economics Pty Ltd, May 1998,  Statement of Christopher John Richardson, Pay Equity Inquiry (mimeo).

Australian Bureau of Statistics, 1997, Labour Force Australia, various, AGPS, Canberra.

Brook, P.J. 1990, The Inequity of ‘Pay Equity’: Comparable worth policy in New Zealand, New Zealand Policy Papers 1, Centre for Independent Studies, Auckland, New Zealand.

Dorrance, G.S. and H. Hughes, 1996, Working Youth: Tackling Australia’s Youth Unemployment, CIS Policy Monographs 34, Centre for Independent Studies, Sydney.

Gregory, R.G. 1998, Evidence to the NSW Pay Equity Inquiry (mimeo).

Gregory, R.G. and B. Hunter 1995, ‘The macro economy and the growth of ghettos and urban poverty in Australia,’ Discussion Paper No 325, Centre for Economic Policy Research, Australian National University.

Killingsworth, M.R. 1990, The Economics of Comparable Worth, W.E. Upjohn Institute for Employment Research, Kalamazoo, Michigan.

Moens, G. and S. Ratnapala 1992, The Illusions of Comparable Worth, CIS Policy Monographs 23, Centre for Independent Studies, Sydney.

NSW Treasury, May 1998, ‘The economic impact of certain pay equity scenarios for New South Wales,’ paper prepared by the Centre for Regional Economic Analysis (CREA), University of Tasmania (mimeo).

Stinson, R. 1998, Evidence to the NSW Pay Equity Inquiry, February, mimeo.

Wooden, M. 1998, ‘Gender pay equity and comparable worth in Australia: a reassessment,’ National Institute of Labour Studies Inc, Evidence to the NSW Pay Equity Inquiry.

Xin Meng 1992, ‘Individual wage determination in township, village and private enterprises in China,’ Ph.D. Dissertation, Australian National University.

About the Author:
Helen Hughes is Professor Emeritus and Visiting Fellow in the Department of Economics, Research School of Pacific and Asian Studies, Australian National University, and Senior Fellow, Centre for Independent Studies. A longer version of this paper was published in June by the CIS as Issue Analysis No. 2. Issue Analysis is available on the CIS website at http://www.cis.org.au

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