About Nick: i am an economist based in malaysia. I write about development economics, while sneaking in a pop culture reference or two.

The Complexity of the Gender Wage Gap

Published in The Edge Malaysia, 5 - 11 September 2016.

Last week, the Khazanah Research Institute (“KRI”) released the State of Households II report. Among the more interesting observations the report highlighted were that cash transfers such as the Bantuan Rakyat 1Malaysia (“BR1M”) have improved incomes especially among the less well-off; median household income in Malaysia is lower than average household income indicating outliers at the very top of the household income distribution; approximately 85% of Kelantan and 81% of Perak households earn less than RM6,000 a month, compared to approximately 36% and 31% of Kuala Lumpur and Putrajaya households respectively; wealth inequality is far starker than income inequality.

While those are all hugely insightful observations, and deserving of entire columns in and of themselves, the observation that I found to be the most fascinating – if unsurprising – is that, across all ethnicities and urban/rural locations, average household incomes for households led by men are higher than for households led by women. Of course, there are some caveats to this. Since the data measures household income, it is possible that households led by women have lower average household incomes because a male member of the family is deceased (since males are, at least in Malaysia, typically regarded as the head of the family). Yet, with Malaysia ranking 111th out of 145 in the World Economic Forum’s (“WEF”) 2015 Global Gender Gap Report, this finding should not come as a surprise.

When we think of the ‘gender gap,’ we typically think of it as ‘equal work for equal pay.’ In that respect, Malaysia does not fare too badly, based on the WEF report. According to the report, Malaysia ranks 6th in the world in terms of ‘wage equality for similar work’ with women making 81 cents for every dollar a man makes. Ignoring, for now, issues of sample selection given survey data, this is an encouraging sign – the world’s average is 60 cents – but, certainly, there is still more to do to achieve parity.

However, before we pat ourselves on our backs too much, ‘equal pay for equal work’ does not adequately capture the complexity of the wage gap. Understanding the greater complexity of the gender wage gap requires delving a lot deeper than simply referring to just one statistic. In her 2014 Presidential Address to the American Economic Association, Harvard economist Claudia Goldin argues that while a narrowing has occurred, in the past century, between men and women in labour force participation, paid hours of work, hours of work at home, education qualifications, there is still a “last chapter” left to go in gender convergence. While her evidence is based on United States data, the themes that she develops in her speech are still broadly applicable.

The key point of note, Goldin argues, is that wage discrimination is not obvious and that it would be difficult to find smoking guns. For instance, companies do not put up signs saying, “NO WOMEN NEED APPLY” or even deciding to pay women less. Instead, the work place disadvantages women in far more subtle ways.

In her address, Goldin highlights two main strands of gender wage gap complexity. Firstly, she points out that women in business have large wage gaps while scientists do not. The reason for this is that, in business, clients typically want to deal with a person specifically and, as such, her clients and her employers may believe she is not meeting expectations if she fails to show up at hours when others need her. A scientist, on the other hand, works in a mostly self-directed way. As long as she runs her experiments and writes her reports on time, it is unlikely that she will get into trouble. Put another way, a scientist has a far more flexible schedule than a woman in business and is not limited to the standard 9 to 5 work day. Indeed, Goldin’s work has found, in industries with large gender wage gaps, it is far more likely for workers to say that their jobs value those who “develop constructive and cooperative working relationships.”

Secondly, Goldin also shows that women in their 30s have a much larger wage gap than women in their 20s. Goldin’s research finds that the wage gap starts small in a woman’s 20s before expanding greatly in her 30s, and then shrinking again as she enters her 40s and 50s. The primary reason for this is obvious – children. Yet, having and raising children may explain lower labour force participation, but not a widening gender gap. Thus, the secondary reason is less obvious – over the years, as labour force participation increased, most mothers of toddlers or young children work now. There is now fewer full-time stay at home parents. Given that the burden of childrearing typically falls on mothers in nearly all societies, mothers will therefore need to work fewer hours or find some place in their schedule for childrearing. This results in lower wages for mothers.

Another unique insight that Goldin provides is that of pharmacists. Where the gender wage gap in the pharmacist profession used to be that women made 66% of what men made, that has now increased to 92%, a far smaller gap than doctors or lawyers. A big part of this was due to industry structure – as pharmacies migrated from mom-and-pop stores to large pharmacy chains, customers essentially saw the workers as fungible. In other words, customers did not care about seeing a particular pharmacist, they just wanted to get their medication. As long as there was a pharmacist in place, whoever that pharmacist was, the customer could be satisfied.

The lessons that Goldin teaches in terms of reducing the wage gap can be summarised as follows. First, to reform business or entity operations such that workers become interchangeable. This may be less applicable to business, or politicians, or doctors, but there are plenty of professions for which this method can be utilised. Second, to have more flexible hours such that people work when they need to work, rather than being at work because they are supposed to fit a given time frame. In essence, this then places a primacy on the quality of hours worked, as opposed to the quantity, and hence shifts the reward system against overrewarding those who have the flexibility to work long, rigid hours.

As the KRI report has shown, the gender wage gap in Malaysia is still sizeable. A good next step would be to see how the available data showcases the greater complexities of the gender wage gap, particularly by profession and by age, as pointed out by Claudia Goldin. By doing so, we can then truly understand the gender wage gap in Malaysia and figure out solutions – especially workplace-based solutions (as opposed to policy solutions necessarily) – to close that gap. After all, if, as KRI shows, the labour force participation rate of young women with a tertiary education is approximately 88%, we owe it to all of them to ensure that they are valued as highly as men are in the labour force.

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