16 February 2018

Not all gender pay gaps are worth worrying about

By Madeline Grant

Recent research on the ride-sharing app Uber has thrown up some remarkable findings about the gender pay gap, and male and female behaviour more broadly.

The report, by economists from Stanford University and the University of Chicago, was truly a one-of-a-kind study. Researchers were granted access to Uber’s gargantuan datasets, with insights into millions of drivers and journeys. Crucially, the nature of Uber’s platform model eliminated from the outset most of the reasons typically blamed for the gender pay gap.

Uber’s ride-allocating algorithm is gender-neutral and offers full flexibility to its users. Driver compensation involves no bargaining, thereby removing any advantage that men might have in negotiating as a possible factor in wage differentials.

Yet, despite this unique set of circumstances, the research team still found a pay gap of 7 per cent in favour of men. In other words, even in a job where discrimination does not, and could not, exist, men are still out-earning women by a significant margin. The reason? Choice.

The report’s authors attributed the gap largely to different working preferences between the sexes. Men tended to work longer hours, they found, and at more lucrative times of day, enjoying more “surge” rates than women.

On average, men also tended to work longer for Uber than women. The study found that 77 per cent of women drivers left Uber after 6 months, compared to 65 per cent of male drivers – and experience using the Uber app correlated to higher earnings. But by far the most important factor, accounting for half the wage disparity, is simply that male drivers tended to drive faster than their female counterparts.

Much has been made of these extraordinary findings (I recommend Ryan Bourne’s analysis here, and this recent podcast from the Freakonomics team), which provide compelling evidence that, even after controlling for a range of mitigating circumstances, men seem to behave differently and make different choices from women.

And this is a worldwide trend. Paradoxically, countries which offer more choices, rights and provisions for women, often end up with bigger pay disparities between men and women, or at least, gaps that are comparable to countries whose governments have historically intervened far less.

As Ryan Bourne notes, “differences between men and women are often more pronounced in more equal countries. The sexes choose more different degree courses and more different jobs.”

There is even some evidence that personality differences between men and women become more pronounced in countries with greater gender equality.

Comparing aggregate gender pay gaps amongst EU countries yields surprising results. Estonia, which provides one of the most generous paternity leave policies in Europe (130 days, fully paid), nevertheless records the most dramatic aggregate pay gap of all EU countries – 26.9 per cent. Germany, despite implementing progressive equality policies, including split parental leave, has a raw pay gap of 21.6 per cent – significantly higher than the EU average of 16.3 per cent.

We even see this trend repeated in Sweden, arguably the country which has historically taken more drastic action to eliminate the gender pay gap than any other.

In 1954, years before the advent of second-wave feminism, the Swedish government established a dedicated Minister for Gender Equality. The following year, Sweden brought in paid maternity leave, and, in 1974 became the first country to switch to gender-neutral parental leave. At the time, couples received six months’ leave per child – with each parent entitled to half the days. However, men had the option of signing their days over to the women – and most of them did. Two decades later, women were still using 90 per cent of the leave days.

Today, Swedish couples accrue around 16 months (480 days) paid parental leave when their child is born, which they can take at any time over the following seven years. And the Swedish government stipulates that if families want to receive their full subsidies, fathers have to use at least 60 days of this leave.

But despite this unparalleled flexibility, and despite mandating paternity leave, Swedish women still take, on average, more than 80 per cent of a couple’s parental leave while their first child is under the age of two. They are also more likely to work part-time and take longer periods of unpaid leave.

The same is also true of pay. While Sweden has one of the highest rates of female labour force participation in the world, women who work full-time are paid around 15 per cent less than men. Their gender pay gap is similar to that of the United States, which offers no paid maternity or paternity leave whatsoever, and higher than in many countries with comparable female employment rates. The pay gap is even larger (21 per cent) among parents.

I would tentatively suggest that women in Sweden, a country which ranks among the world leaders in gender equality on every metric bar pay, have not been brainwashed and socially conditioned into making these choices. A far more likely explanation is simply that, when given the option of generous maternity leave, most women actively want to spend time bonding with their child.

As the Uber study revealed, choice seems to be the guiding cause of these differentials. As well as the motherhood factor, much of the gap is attributable to Sweden’s segregated labour market. Women are overwhelmingly more likely to favour the public sector, where pay tends to be lower.

To many of us, the pursuit of unachievable goals like the elimination of “gaps” is not what progress looks like – yet policy makers seem obsessed with it. By fixating on equality of outcome, they risk implementing ineffective policies. It was revealed last week that just 2 per cent of eligible couples in Britain have chosen to take advantage of the joint parental leave scheme that Nick Clegg brought in while deputy prime minister. While the option for more men to take leave will prove useful for some families, the real emphasis should arguably be on removing government-imposed obstacles that hinder mothers returning to work – for example, over-regulation of the childcare sector, which has dramatically raised childcare costs for parents in the UK.

Yet given what we know about personal preference, it’s high time that policy makers stopped viewing the elimination of pay gaps between men and women as an unqualified positive. Ironically, giving new mothers less flexibility and fewer maternity rights might well result in lower pay gaps; but at the cost of individual choice.

Madeline Grant is Digital Officer of the IEA.