Gender Pay Gap Contents

3The link to productivity

47.The 19.2% gender pay gap that exists in the UK is much more than an equality issue. It represents a significant loss to UK productivity which must be addressed in the face of an ageing workforce, a skills crisis and the need for a more competitive economy. There is a clear case that tackling the underlying causes of the gender pay gap can increase productivity, address skills shortages and improve the performance of individual organisations.

48.Business interest in reducing the gender pay gap was explained by Neil Carberry from the Confederation of British Industry:

From a labour market point of view, the fact that we have a gender pay gap is, by definition, a sign of an inefficiency, and therefore resolving it is commercially important to our members.46

49.In monetary terms, the UK Commission for Employment and Skills (UKCES) pointed to research by the Women and Work Commission which estimated that:

The under-utilisation of women’s skills costs the UK economy between 1.3 and 2% of GDP every year. Other estimates of the potential benefit of fully tapping into female talent in the economy are that raising the level of women’s employment to the same as men’s could lift GDP by 10% by 2030, while eradicating the full-time gender pay gap would contribute additional spending into the economy of £41 billion each year.47

50.Women are better qualified than ever before. The data show that girls do better than boys at both GCSE and A level in England, Wales and Northern Ireland. For Scotland, data for school leavers show more girls than boys staying on beyond 16 and achieving higher level qualifications.48

Figure 4: Percentage of those attaining 5 or more A*-C grades at GCSE by gender

Source: UKCES Opportunities and outcomes in education and work: Gender effects 2015

51.This is not just a recent phenomenon though. As the chart below shows, women’s educational levels have been rising across all age cohorts. By 2012/13, the proportion of women with a higher education qualification was higher than men in every age group. Even in older cohorts, the proportion of people with a higher education qualification has increased at a faster rate for women compared to men. The gender gap was biggest among the age group 25 to 34 at 47% for women and 42% for men.

Figure 5: Proportion of women with higher education qualifications by age, over time

Source: ONS Labour Force Survey 2002/3 and 2012/13 via Joseph Rowntree Foundation

52.As women continue to outperform men educationally, the case for taking action to ensure their skills are fully utilised is incontestable.

53.We also heard evidence on the gains individual organisations could reap from policies that encourage women’s continued participation in the labour market. Ann Francke from the Chartered Management Institute explained:

Companies that embrace more progressive policies absolutely benefit economically. They get higher engagement scores and higher productivity. It has to shift away from … a benefit for the employee to a benefit for the organisation. The organisations that embrace it, whether it is Unilever or Timpson, see concrete material gains in their productivity and results.49

54.The economic benefits of reducing the gender pay gap by tackling its underlying causes fall into three main categories:

(1)The advantages associated with flexible working

(2)Increasing the talent pool by making it easier for women to access jobs

(3)The benefits of a diverse workforce

Flexibility

55.Ann Francke pointed the Committee to research done by EY which found that £11.5 billion could be added to the UK economy through more productive use of available flexible working hours: “The EY study I mentioned also shows that flexible firms get boosts in productivity and that the flexibility benefits men as well as women.”50

56.Neil Carberry suggested that one aspect of this productivity gain might come from improved employee health.

We know that employee health matters and that it has an impact on productivity. People get stressed when there are clashes between different areas of their work life so, by definition, it is logical step that flexibility reduces stressors in employee health, and makes workplaces more productive.51

57.Survey data from the Modern Families Index52 suggests that “burnout” is particularly significant for millennials and younger parents aged 16-35. They are almost twice as likely to report feeling burned out as older parents: 42% of millennial parents said they felt burned out most or all of the time, compared with only 22% of 36-45 year olds. Currently most parents deal with this by taking sick leave or annual leave. Working Families suggest that flexible working, together with more realistic expectations around workload, would help alleviate this problem.

58.Flexible working is increasingly recognised as a means of improving performance by organisations across the world. A recent global survey by Vodafone53 found that 75% of companies offered flexible working to enable employees to vary their hours or work from home. 61% of respondents to the survey said flexibility had increased their company’s profits and 83% said they had led to an improvement in productivity.

59.One key aspect of flexible working is being open to thinking about jobs in terms of outcomes, rather than time spent in the workplace. The importance of good job design in improving productivity was raised by Emma Stewart from Timewise Foundation, Scarlet Harris from the TUC and UKCES amongst others. According to UKCES:

Improving workplace productivity should be recognised as the key route to increasing pay and prosperity–good job design is increasingly being recognised as essential for building stronger productivity, and world-class management is required to use workforce skills effectively. Employers need to challenge established practices, and be ready to step out of comfort zones in terms of job design. This also includes questioning norms in terms of working patterns, looking at new ways of allowing workers to combine paid work with their out of work caring responsibilities.54

60.The Secretary of State for Education and Skills and Minister for Women and Equalities, Nicky Morgan MP, told us about her own experience of the relationship between productivity and working hours:

When I was working part-time before I was elected to this place, for the four days I spent in the office it was head down and straight on, because you have to leave at a certain time to go home and to do other things. Again, it goes back to being very explicit. Evidence from this Committee and elsewhere shows just how productive those working less than full-time hours are, why businesses and employers should absolutely embrace them, and why it is important to be flexible to get the most out of your employees.55

61.The Government has also recognised the benefits of flexible working. In January 2016 the Cabinet Office published a new code of practice for “smart working”. This noted that:

The world of work is changing. People no longer need be tied to the desk - we can work smarter than that, in a way that saves money on property, that empowers the individual and improves productivity.56

62.Smart working is currently being rolled out across the Civil Service. Its key principles include:

Work takes place at the most effective locations and times , not necessarily in the office
Flexibility is the norm rather than the exception
Managing performance focuses on results and outcomes rather than presence

63.At the top levels of Government, business and the public sector there is widespread recognition that flexible working offers many benefits to employers. But this message has still not trickled down to the vast majority of organisations. The Government’s new code of practice for smart working has not been widely publicised, and those who stumble across it face the additional barrier of paying £75 to access it.

Skills shortage

64.Tackling the underlying causes of the gender pay gap means addressing the barriers that women currently face in getting employment. As well as helping women to fulfil their full potential, this also carries significant benefits for business as the Institute of Chartered Accountants in England and Wales (ICAEW) notes:

The economic contribution women bring to business is recognised. Gender pay is not just a matter of fairness, but is critical to businesses economic aims. Not taking advantage of half the potential talent pool or alienating half of a business’s customer base risks organisations missing their business goals.57

65.This is an issue that employers are increasingly recognising according to Neil Carberry:

I think the most important thing that we are getting back from members is the need to move away from viewing things like flexibility as an employee benefit, rather than as something we do to organise how we are as an organisation to make profit and to engage in retaining talent. This is a country in which the labour force might be getting smaller over the next few decades. Talent retention, in the face of skills shortages that are already going on, is commercially important to our members.58

66.As the Royal Institute of British Architects points out this is a particularly significant issue in their sector:

In an expanding construction industry, looming skills shortages mean that we would welcome a greater emphasis on promoting equality as an essential part of increasing the productivity of the UK’s economy.59

The benefits of diversity

67.There is a growing body of evidence on the benefits of diversity to organisations. Some of this focuses on improved decision-making. Research from Credit Suisse60 shows that more diversified boards deliver better returns. It finds that in boardrooms where there is one female there is an average return on equity of 14.1% since 2005 compared to 11.2% for all-male boards. The report concludes, “It is not a case of a greater ability of one gender versus the other but that a more diverse group makes for better decision making and corporate performance.”

68.The CMI point to other measures against which increased diversity is correlated with improved performance:

The business case in favour of supporting women aged over 40 at work is a subset of the strong arguments in favour of improving gender diversity for firms … Having women in business benefits men as well as women. This is proven in terms of hard measures like growth, return on equity, and return on sales. It’s proven in terms of soft measures like engagement, customer satisfaction and it’s also proven in terms of limiting the downside.61

69.In its evidence, the ICAEW point to McKinsey’s work on quantifying this gain.

A recent McKinsey study identified that gender-diverse companies are 15% more likely to outperform their competitors. Benefits have been shown to arise in areas ranging from consumer reception to employee commitment.62

Barriers to change

70.If the economic case for tackling the gender pay gap is so clear, why are organisations not taking action to reduce it already? We heard evidence on a range of barriers to implementing change. These included:

A focus within too many organisations on presenteeism rather than productivity
A reluctance to think about job design differently
A lack of leadership in this area from Government and sharing of best practice
Poor management skills

As Ann Francke told us:

Evidence doesn’t always change behaviour: we have compelling evidence, the stuff is there and people could make use of it, but they don’t. It is about being quite relentless and saying, “Actually, there isn’t one thing that we have to do; there are many.”63

71.There is strong evidence of the economic and productivity benefits of tackling the gender pay gap. The best organisations recognise this and are taking steps to offer flexible working and improve job design to attract and retain talent. However, the productivity case for reducing the gender pay gap has not been made strongly enough to all employers across the UK. The Government, business, trade bodies, unions and public sector organisations must work to move the discussion about the gender pay gap beyond one of equality, to one of economic necessity. Government must also take action to lead by this example, by ensuring tackling the causes of the gender pay gap is a priority for all public services.