The persistence of the gender wage gap in Australia and overseas has been the subject of much research. Debates about how best to measure the wage gap, how to calculate the relative contribution different factors make to the gap, and how the gap and its determinants differ across sectors and income levels abound. However, few if any studies, and none for Australia, provide a comprehensive and detailed account of the impact of the gender wage gap to economic growth. This paper seeks to provide such an account, with our research presented in the body of this paper, and our key findings summarised, as follows.
The persistent nature of Austalia's gender wage gap
Analysis of Australian Bureau of Statistics earnings data confirms that Australia has a persistent gender wage gap. Data from the Average Weekly Earnings Survey show that between 1990 and 2009, the gender wage gap remained within a narrow range of between 15 and 17 per cent. Indeed over the last four years the gap has steadily increased within this range from a low of 15.1 per cent in February 2005 to 17.0 per cent in February 2009.
[ top ]
Key determinants of the gender wage gap in Australia
In estimating the impact of a sustained gender wage gap on the Australian economy, it was instructive to first identify and quantify the relative contributions of the key determinants of the gap.
Utilising robust microeconomic modelling techniques, based on a comprehensive and critical evaluation of several methodologies, we found that simply being a woman is the major contributing factor to the gap in Australia, accounting for 60 per cent of the difference between women’s and men’s earnings, a finding which reflects other Australian research in this area. Indeed, using wage gap analysis from the HILDA survey, the results showed that if the effects of being a woman were removed, the average wage of an Australian woman would increase by $1.87 per hour, equating to an additional $65 per week or $3,394 annually, based on a 35 hour week.
Other key determinants of the gap that were identified and quantified as part of the microeconomic modelling component of our research were industrial segregation (25 per cent), labour force history (seven per cent), under-representation of women with vocational qualifications (five per cent) and under representation of women in large firms (three per cent).
Overall, and as detailed in the body of this paper, our finding that simply being a woman is the major contributing factor to the wage gap in Australia is significant. Consistent with results from other Australian studies it highlights the considerable impact that discrimination and other differences between men and women, including differing motivations and preferences, can have on reducing the earnings of women relative to men, irrespective of similar labour force and work-related characteristics.
[ top ]
The costs of the gender wage gap to the macro economy
At the microeconomic level, the negative impacts of key drivers of the gender wage gap are significant. Yet what are its effects on the Australian economy as a whole? An increasing body of literature shows that in addition to fairness and equity there are also strong economic imperatives for addressing the gender wage gap.
Using rigorous macroeconomic modelling techniques, again selected on the basis of a critical evaluation of several methodologies, we found that the gender wage gap has a substantial effect on Australia’s economic performance, measured in terms of GDP per capita, and that the value of reducing the gap is substantial. For example, we estimate that a decrease in the gender wage gap of 1 percentage point from 17 per cent to 16 per cent would increase GDP per capita by approximately $260. This equates to around $5,497 million (2007 dollars) or 0.5 per cent of total GDP, assuming that the Australian population is held constant. The results also indicate that eliminating the whole gender wage gap from 17 per cent to zero, could be worth around $93 billion or 8.5 per cent of GDP.
The impact of the wage gap on macroeconomic performance was measured both in terms of its direct impact on economic growth and through several indirect channels, including investment, fertility, hours of work and labour force participation. Diagnostic analysis of these results showed that while the relationship between the gender wage gap and economic growth was negative for each of these variables, except labour force participation, only the hours of work channel was statistically significant. This suggests that based on the assumptions of the model, the negative impact of the gender wage gap on Australia’s macroeconomic performance stems primarily from the disincentives to work associated with women’s earnings being lower than men’s.
Using our findings at a microeconomic level, we have also estimated the effect of each key determinant of the gender wage gap at the macro level. Disaggregating the estimated $93 billion cost to the economy of the gender wage gap, we estimate that removing the negative effects associated with the prime determinant of the gap, that is being a woman, could add around $56 billion or 5.1 per cent to total annual GDP.
[ top ]
A few words of caution
We recognise that the findings presented in this paper are subject to the limitations and assumptions of the underpinning microeconomic and macroeconomic models. As detailed in the main body and appendices of this paper, we have sought to identify and minimise, to the greatest extent possible, these limitations. It should be noted, however, that both areas of modelling are the subject of vigorous debate about the strengths of a range of methodological techniques. While our work is firmly based on best practice and has been subjected to rigorous quality assurance procedures, the use of different data sets coupled with ongoing developments and improvements in methodological techniques may potentially produce different results. Details of our methodology and its potential limitations are provided in the appendices to this report.