Transparency does help tackle inequality

Two decades ago, as part of the Good Friday peace process, laws were introduced in Northern Ireland requiring local firms with more than 250 employees to publish the breakdown of their staff by religion.

Brexit has raised some bleak clouds over the peace process and the politics of the region have fallen into a slough of dysfunction, but many credit the Fair Employment and Treatment Order of 1998 with helping Northern Ireland overcome a historic and toxic culture of anti-Catholic discrimination.

Over the past 20 years the share of Catholic employees in public and private firms in Northern Ireland has risen. The gap between Catholic and Protestant unemployment rates has also diminished. It’s worth considering this successful history as we approach the 4 April deadline for all UK companies of a certain size to report their gender pay gap.

Some are grumbling that these mandatory statistical breakdowns are doing more harm than good.

“Variations in hourly wages or bonuses between men and women are often interpreted – wrongly – as evidence of different pay for the same work,” complains Julian Jessop of the Institute of Economic Affairs, a libertarian think tank.

Jessop paints a picture of firms being so unfairly monstered on the basis of such misconceptions that they start outsourcing the jobs of, for instance, low-paid women, in order to avoid them impacting their headline gender gap figures. If Jessop is right, the gender gap reporting requirement could, indirectly, hurt the very people the law is intended to help. But there’s little reason to believe he is actually right.

We saw some similar issues of statistical interpretation in relation to the religious employment gap in Northern Ireland.

In 1999, the year after the legislation was introduced, the share of the Catholic workforce was 39.6 per cent. Anyone anticipating a 50-50 split might have concluded this represented a vast level of anti-Catholic discrimination. In fact, the Catholic share of the workforce available for work in that year was 42 per cent.

So the employment gap was real – 2.4 percentage points – and supported the impression of anti-Catholic discrimination. But it was not as high as the naive expectation would have put it.

Rigorous statistical analysis suggests the Northern Irish employment equality situation has improved. The Equality Commission for Northern Ireland reports that in the early 1990s the gap between the Catholic employment share (35 per cent) and the available Catholic labour force share (40 per cent) was 5 percentage points. In 2015 this gap had been whittled down to 1.6 percentage points (with the Catholic employment share rising to 47.9 per cent and the available Catholic workforce to 49.5).

If the people of Northern Ireland have been able to cope with these kinds of statistical adjustments based on firm-by-firm reporting, it seems somewhat pessimistic to fear that the wider UK will be unable to do something similar with regard to the gender pay gap.

The UK government’s separate plans to require firms to publish their chief-executive-to-average-worker ratio have elicited similar complaints of the creation of a supposedly dangerously misleading data point.

Some have, like Jessop, issued warnings of the outsourcing of low-paid workers in response to the requirement.

“Pay ratios do not lend themselves to valid comparisons between companies, even within the same industry, and would likely add to misunderstanding over executive pay as well as potentially creating perverse incentives,” claims a group called Big Innovation Centre. 

Again, the scent of alarmism is powerful here. Is it really credible to believe that the public will be unable to appreciate the factors that lie behind the differences in the pay ratio between, say, the London arm of a US investment bank, a multinational mining company and a domestic supermarket chain? 

The “single figure” reporting requirement for senior executive remuneration, introduced by the coalition government, has already facilitated much better appreciation on the part of the public, and indeed investors, of the reality of pay at the top of public companies. The roof has not yet fallen in. Indeed, there are some tentative signs of pay at the top of companies being reined in, which may well have something to do with the clarity created by such clear figures.

The historical evidence, then, suggests that when it comes to various dimensions of equality in the workplace, some information is better than no information.

It’s true that a company’s gender pay gap is a crude metric. Averages, of course, conceal a great deal. But the generally overlooked merit of disclosure is that it can spur other questions. Why is an organisation’s gender pay gap high? If it’s because there are few women in senior roles, why is that? Many of those companies that have already reported a gap have felt the need to engage with their workforces, to explain the divergence, to set out longer-term plans to deal with it. That’s already a benefit.

A mild irony in all this is that libertarian outfits such as the Institute of Economic Affairs are leading the charge against company gender pay reporting, when it was that movement’s intellectual godfather, Friedrich Hayek, who wrote so compellingly of the authority of decentralised knowledge – and the merit of allowing people the power to act on it.

#highpay #FriedrichHayek #genderpaygap #NorthernIreland #executivepay

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