Small firms need to report gender pay gaps, says Bank chief economist

The UK government will need to insist that companies employing more than 30 people report their gender pay gaps if inroads are to be made into the persistent bias in wages and salaries, a senior Bank of England official has said.

Andy Haldane, Threadneedle Street’s chief economist, said only 40% of the private-sector workforce was covered by current legislation that obliges companies with more than 250 staff members to publish details of differences in pay between men and women doing identical jobs.

Speaking at a joint Bank of England and European Central Bank conference on gender and career progression in Frankfurt, Haldane said that although the gender pay gap had shrunk in recent years, it remained close to 10%.

“To tackle the pay gap comprehensively,” Haldane said, “there is a strong case for extending the pay reporting regime to smaller companies – say, those with 30 or more staff.”

The Bank official said the ethnic pay gap was similar to the gender pay gap and also required action. “There is currently no compulsory system of company reporting on the ethnicity pay gap in the UK, though the government has consulted on doing so. In my opinion, there are therefore strong grounds for extending compulsory reporting to ethnicity as well as gender,” Haldane said. It was important to look at how different ethnic groups fared in the UK labour market rather than necessarily treating ethnic minorities as a single group.

What is the gender pay gap?

The gender pay gap is the difference between the average hourly earnings of men and women. The figure is expressed as a proportion of men’s earnings. According to the ONS, the gap between what UK male and female workers earn – based on median hourly earnings for all workers – was 17.9% in April 2018, down from 18.4% in April 2017. Data in 2018 showed that men were paid more than women in 7,795 out of 10,016 companies and public bodies in Britain.

What is being published?

All companies and some public sector bodies in Great Britain, except Northern Ireland, with more than 250 employees had to report their gender pay gap to the Government Equalities Office for the first time by by 4 April 2018. The second year of gender pay gap reports  - and the first indicator of how public bodies and companies are performing - must be filed by April 2019

What’s the difference between the mean and the median figures?

Commonly known as the average, the mean is calculated by adding up the wages of all employees and dividing that figure by the number of employees. The mean gender pay gap is the difference between mean male pay and mean female pay.

The median gap is the difference between the employee in the middle of the range of male wages and the employee in the middle of the range of female wages. Typically the median is the more representative figure, because the mean can be skewed by a handful of highly paid employees.

What will happen if companies don’t report?

The Equality and Human Rights Commission (EHRC) said that, while it would approach employers informally at first if they failed to publish figures by the deadline, businesses could ultimately face “unlimited fines and convictions”. However, information published following a freedom of information request by the Guardian showed that no companies have been fined to date despite hundreds failing to accurately file their gender pay gap figures on time.

The government has launched a consultation on requiring companies to publish ethnicity pay gaps on an annual basis. Haldane said that while 63% of employers monitored ethnicity pay gaps, only 31% of employers currently published them.

Greater transparency would provide companies with an incentive to explain and close pay gaps, he added.

Unemployment is currently measured on an internationally agreed basis in order to make cross-country comparisons, and the economist said there was a strong case for adopting the same approach to diversity pay gaps. He said the Paris-based thinktank the Organisation for Economic Co-operation and Development (OECD), had expertise in labour market issues and could take the lead.

“The international central banking community could also help lead by example”, Haldane said, adding that the Bank had been prompted into action by its own audit, which showed a gender pay gap of 23% and a ethnic pay gap of 7%, affected by the lower representation of both groups at senior levels of the Threadneedle Street hierarchy.

“The Bank is committed to closing these pay gaps, including by setting stretching targets for representation, in general and at senior levels,” Haldane said. At present, the governor and four deputy governors are all white men, as are eight of the nine members of the monetary policy committee, the body that sets interest rates.

There was “clear evidence” that progress had been made in closing gender and ethnic pay gaps in the UK over the past 25 years, he said.

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“The less good news is that these gender and ethnicity pay gaps remain large even once various compositional effects are taken into account, at around 10 percentage points. Pay gaps have not only been large but persistent, strikingly so among ethnic minorities, even once we make allowance for differences in skill and job attributes. This suggests, despite progress, much remains to be done.”

Assessed by qualification, the largest gender pay gaps were for people with GCSE or no qualifications, while the lowest gaps are for workers with a degree or equivalent. Location also appeared to play an important role, with the gender pay gap outside London consistently higher than in the capital, across all levels of qualification.

“Even where we can explain pay gaps using various fundamental factors, this should not be taken to imply these gaps are necessarily justifiable. For example, consistent and large education and skills differences between cohorts could themselves be taken as evidence of a policy failure,” Haldane said.