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Recent study regarding gender gaps – the effects of pay transparency

pay transparency

According to Statistics Canada, pay inequality between men and women is a persistent phenomenon in Canada and around the world. The “gender pay gap” is the difference between women’s and men’s earnings from paid employment, expressed as a proportion of men’s earnings.

On September 16, 2019, Statistics Canada released results of a study dealing with pay transparency and the gender pay gap.

In fact, it is the first Canadian study that quantifies the degree to which pay transparency laws work to reduce the gender pay gap. Focusing on university faculty members at Canadian universities, pay transparency laws provide public access to the salaries of faculty members where they exceed certain thresholds. The report concluded that: (1) pay transparency laws in some provinces caused a slower growth rate of faculty salaries; (2) the laws reduced the gender pay gap percentage by 2.2 to 2.4 points (a 30 percent reduction); and (3) the effects of pay transparency were more pronounced in unionized workplaces.

How does Statistics Canada measure the gender pay gap?

You may be wondering, how does Statistics Canada measure the gender pay gap? Statistics Canada provides the answer – there are three different ways that the gender pay gap can be measured.

What is more, since the size of the gender pay gap varies depending on which method is chosen to determine the gender pay gap, the best method depends on the intended use of the estimate.

More specifically, there are three main methods for measuring the gender pay gap:

(1) Comparing the annual earnings of all employed women and men – this method generates the largest estimates of the gender pay gap because the annual earnings of all employed women are compared with annual earnings of all employed men. This is the most inclusive measure of the gender pay gap because it captures gender differences in pay as well as in hours and weeks worked for workers in all employment contexts. In 2017, women aged 16 and older earned an average of $0.69 for every dollar earned by men. This represents a gender pay gap of 31 percent. It is important to note that women spend less time on paid work than men; in 2017, women worked 5.5 hours fewer than employed men, and were less likely to be employed on a full-time, full-year basis (defined as working 30 or more hours per week for 49 to 52 weeks in a given year)

(2) Comparing the annual earnings of women and men employed on a full-time, full-year basis – this method excludes part-time and part-year workers, and effectively creates a smaller estimate of the gender pay gap compared to the first measurement option. In 2017, women aged 16 and older who worked on a full-time, full-year basis earned an average of $0.73 for every dollar earned by men. This represents a gender pay gap of 27 percent. It is important to note that even among workers employed on a full-time, full-year basis, women still worked fewer hours per week or fewer weeks per year than men; in 2017, women worked three hours fewer per week than men

(3) Comparing the hourly wages of women and men – all that is captured in this method is the hourly price of labour (there is no consideration of the differences in the number of hours and weeks that women and men work). This method generates the smallest estimate of the gender pay gap. In 2017, women aged 15 and older earned an average of $0.87 for every dollar earned by employed men on an hourly basis. This represents a gender pay gap of 13 percent

So how do you know which one is the best to use? While some believe that the first option is clouded by other factors and can overestimate the gender pay gap, others believe that gender differences in labour supply can be seen as an important aspect of the gender pay gap. For instance, in cases where women perform less paid work than men because they have other responsibilities such as childcare or caregiving, many believe that these financial consequences of gender roles should be reflected in the estimates of the gender pay gap; therefore, using the first measurement option would provide a more accurate picture of the situation.

What is important to remember is that, regardless of the method that is used, gender differences in human capital (education, work experience, and job tenure), job characteristics (firm size and union status), occupation, and industry do not entirely account for the gender pay gap.

The study

Interestingly, the hypothesis that has been posited lately among academic researchers and policymakers is that the gender pay gap persists partly because it is hidden. Consequently, there has been a demand for more transparency on pay discrepancies between male and female workers.

To that end, there has been an increase in transparency laws. For instance, provincial salary disclosure laws exist in and were studied for British Columbia (implemented 1996, disclosure threshold of $50,000), Manitoba (implemented 1996, disclosure threshold of $50,000), Ontario (implemented 1996, disclosure threshold of $100,000), Nova Scotia (implemented 2012, disclosure threshold of $100,000), Alberta (implemented 2015, disclosure threshold of $125,000), and Newfoundland and Labrador (implemented 2016, disclosure threshold of $100,000).

One example is the Ontario Public Sector Salary Disclosure Act, 1996.

This statute is aimed at assuring the public disclosure of salary and benefits paid concerning employment in the public sector to employees who are paid a salary of $100,000 or more per year. Essentially, each year, employers must make available for inspection by the public, without charge, a written record of the amount of salary and benefits paid in the previous year by the employer to an employee paid at least the threshold amount.

Additionally, Ontario recently announced the creation of pay transparency legislation, containing pay transparency requirements that were supposed to take effect on January 1, 2019. However, the implementation of the statute has not been fully completed at this time as it is not yet in force.

One important feature of Ontario’s Pay Transparency Act, 2018 is the requirement to report gender earnings gaps to the province in pay transparency reports. There are different requirements for employers with 100 or more employees and employers with 250 or more employees. These requirements form a fundamental piece of Ontario Strategy for Women’s Economic Empowerment that aims to help to remove long-standing barriers that have kept women from benefiting equally Ontario’s changing economy. Incidentally, improving gender equality in workplaces and in society could add as much as $60 billion to Ontario’s GDP over the next decade.

But the research question now, is whether these transparency laws are actually working to reduce the gender pay gap.

Given that we just discussed how gender pay gaps are measured, it is important to note how the researchers in this study measured them. This study examined annual earnings of faculty members in this analysis. This study emphasized that using earnings to document gender differences could conflate both the differences in hours worked (such as part-time versus full-time) and the differences in hourly wages; however, this was less of a concern in the context of this study given that the sample was restricted to full-time appointments and faculty salaries in Canada that were typically a fixed amount paid over 12 months.

The results in this study show a causal effect of pay transparency laws on salaries. That is, when looking at the introduction of pay disclosure laws on university faculty salaries across Canadian provinces, there were three main results:

(1) Transparency laws reduce faculty salaries by approximately 1.0 to 3.0 percentage points on average.

All estimates are statistically significant at the 1.0 percent level.

(2) These laws also reduce the gender wage gap by approximately 2.2 to 2.4 percentage points. This represents a roughly 30 percent reduction in the gap, from a base of 7.0 percent to 8.0 percent, which was the gender wage gap that prevailed at the time of the first series of transparency reforms in Canada.

This finding mostly reflects a slowing in the growth of salaries for male faculty members, and also convincing evidence suggesting that the salaries of female faculty members have increased, although the estimates are smaller in magnitude.

(3) The effects of salary disclosure on average wages and the gender wage gap are more pronounced in unionized workplaces.

Female wages increased by roughly 1.0 percentage point in response to the introduction of a disclosure law in unionized universities; contrastingly, this change was nonexistent in universities that were not unionized. Hence, unions representing workers in universities may play an important role in this regard because they participate in the formal grievance procedures that can benefit women in an environment where the majority of chairs and senior faculty members are men.

You may also be wondering, how did Statistics Canada generate the results of this study? Statistics Canada used detailed administrative data from the University and College Academic Staff System between 1970 and 2017. The research design used the variation across Canadian provinces in the rollout of disclosure laws (for instance, the first three provinces were British Columbia, Manitoba, and Ontario), as well as within-province variation in exposed departments.

And why study public sector universities? The report states that the university sector is a good setting for studying the impact of transparency laws on the gender wage gap for several reasons: “First, the gender gap was pervasive at all academic ranks and across all academic institutions in Canada over the period of study. Second, there is consensus on the output of academic faculty—classes taught, research publications, administrative service—and it is relatively easy to observe. Therefore, there is logic to the potential arguments in favour of salary redress under a disclosure law. Third, the well-established and widely adopted divisions of faculty by department and rank allow for precise definitions of reference groups. Fourth, given the way salaries are determined in the university sector, earnings differentials reflect wage differentials rather than differences in hours worked. Lastly, the ease of access to the information revealed by some disclosure laws studied depends on Internet access, and universities were at the forefront of providing Internet access to their employees over the study period”.

What does this mean? These results are based on the examination of public sector university salaries. However, the trend is to create similar pay transparency laws in the private sector. As suggested by the researchers, this trend toward increased pay transparency requirements can have broader impacts that affect social norms. Yet, it is noted that there will likely be disclosure differences when comparing active disclosure (salaries are accessible online) with passive disclosure (salaries are available only upon request). There may be more public pressures and media attention surrounding salaries that are accessible online when it comes to pay transparency. Furthermore, information gleaned from pay transparency reports may be used in future collective bargaining sessions between unions and employers.

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Christina Catenacci

Christina Catenacci, BA, LLB, LLM, was called to the Ontario Bar in 2002 and has since been a member of the Ontario Bar Association. Christina worked as an editor with First Reference between February 2005 and August 2015, working on publications including The Human Resources Advisor (Ontario, Western and Atlantic editions), HRinfodesk discussing topics in Labour and Employment Law. Christina has decided to pursue a PhD at the University of Western Ontario beginning in the fall of 2015. Read more
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