Media Briefings

DISCRIMINATION PARTLY TO BLAME FOR GENDER PAY GAP: Experimental evidence

  • Published Date: April 2014

Differences in earning between men and women cannot be fully explained by differences in education, skills and choice of occupation: part of the gender pay gap is down to discrimination that favours people who choose more competitive systems of remuneration. That is the central finding of a study by Matthias Heinz, Hans-Theo Normann and Holger Rau to be presented at the Royal Economic Society’s 2014 annual conference.

 

The researchers simulate a work environment that involves participants choosing different types of pay, with some pay being flexible (bonuses, negotiations, award of perks, etc.) and is determined by superiors with the discretion to decide.

 

In the experiment, employees choose whether they want to get paid according to how much work they do (non-competitive), or according to their performance relative to others (competitive). After the ‘work’ is done, the employer gets information about the employee’s gender, their chosen pay scheme and the employee’s performance. The final and crucial step is when the employer decides on the employee’s wage payment.

 

The results show that Employers pay 37% more to men when male and female employees chose the non-competitive pay option. But the wage gap disappears when women opt for the competitive pay option.

 

The authors comment:

 

‘Our findings show that gender differences in attitudes to competition may cause a gender wage gap that is entirely discriminatory. In most countries, such discrimination is illegal and there is equal pay for equal work by law.

 

‘But the adjusted wage rate in reality is not zero in many countries. The results of our study may explain why: whenever employees or superiors in general have discretion over wages, bonuses, promotions, perks etc., the discrimination against women that we observe may have an effect.’

 

More...

 

The gender wage gap is a persistent phenomenon in many countries. In 2011, women in the OECD countries earned on average 17% less than men. It is often argued that this income gap is (at least partially) driven by differences in educational and occupational choices. Women and men may choose different career paths, differ in their inclination to work part-time, etc.

 

Consistent with this explanation, recent research has documented that women ‘shy away’ from competitive workplaces whereas men ‘embrace’ these environments. If men self-select themselves into competitive high-income branches more often than women, then inevitably a pay gap emerges. Accordingly, differences in attitudes towards competition and competitive environments have been suggested as a major factor for driving the wage gap.

 

At first sight, it appears that such a wage gap due to differences in the attitude to competition is not discriminatory as it would be consistent with the equal pay for equal work principle. But adjusting the gender wage for educational and occupational differences still leads to an income difference of 12%.

 

This gap cannot fully be explained by the aforementioned differences. On the contrary, it will largely result from discrimination when equally qualified and equally performing men and women are paid differently.

 

This study argues that gender differences in attitudes towards competition indeed entail such an additional discriminatory effect. The researchers designed a laboratory experiment to answer the question: ‘How do employers reward performance given the choice for either competitive or non-competitive remuneration by female and male employees?

 

In the field, remuneration is often flexible (bonuses, negotiations, award of perks, etc.) and is determined by superiors with the discretion to decide. Thus, remuneration decisions themselves and the interaction with gender may play a role.

 

In this experiment, employees first choose whether they want to work under (non-competitive) piece rate or (competitive) tournament remuneration. When employees opt for the tournament, their remuneration depends on the performance of the other employees.

 

The best performing employees win the tournament and get a high remuneration. Employees who perform poorly lose the tournament and get a low reward. Afterwards the employer gets information about the employee’s gender, the chosen remuneration scheme and the employee’s performance. The final and crucial step is when the employer decides on the employee’s wage payment.

 

The researchers find a substantive gender wage gap where employers pay 37% more to men when male and female employees chose the non-competitive remuneration. By contrast, the wage gap disappears when women opt for the competitive remuneration.

 

These findings highlight that gender differences in attitudes to competition may cause a gender wage gap that is entirely discriminatory. In most countries, such discrimination is illegal and there is equal pay for equal work by law. But the adjusted wage rate in the field is, as a matter of fact, not zero in many countries.

 

The results of this study may explain why this is the case: whenever employees or superiors in general have discretion over wages, bonuses, promotions, perks etc., the discrimination against woman observed here may have an effect.

 

ENDS

 

 

Notes for editors:

‘How Gender Differences in Competitiveness May Cause a Gender Wage Gap: Experimental Evidence’ by Matthias Heinz, Hans-Theo Normann and Holger Rau

 

For further information, contact:

Dr Holger Rau, holger.rau@fau.de, +49 173 68 47 525

Romesh Vaitilingam: romesh@vaitilingam.com, +44 7768 661095