Gender pay and the changing face of the workforce

Wed 11 Apr 2018

The gender pay gap is a hot topic in offices across the country as the April deadline for companies to report their pay gap has recently passed. The gender pay gap helps to highlight major demographic changes, in terms of the age and gender, affecting the UK’s labour force.

The gender pay gap

In an attempt to increase awareness and improve pay equality, the UK government introduced compulsory reporting of the gender pay gap for organisations with 250 or more employees. The gender pay gap is the percentage difference between average hourly earnings for men and women. The pay gap is useful in measuring pay equality, however it does not measure the pay difference between men and women at the same pay grade, doing the same job, with the same working patterns – this would be measuring equal pay. Equal pay has been a legal requirement since the Equal Pay Act 1970 came into force. However, whether all companies actually deliver equal pay is the source of ongoing debate and recent events at the BBC are a timely reminder of this^[1]

The maths of the measurement does mean a company might have a gender pay gap if a majority of men are in top roles, despite paying male and female employees the same amount for similar jobs.

The Office of National Statistics started collecting data on the pay gap in 1997 and since then a decline in the reported pay gap from 27.5% to 18.4% has occurred. This has coincided with an increase in the female economic activity rate^[2]. This rate had consistently accelerated over 11 years to 2008, however unemployment caused by the Global Financial Crisis saw a year-on-year decline of the measure for the first time in 2009. The increase in the female labour force participation over the last 10 years has been a major change to the UK’s labour supply.

An ageing workforce

The share of older people in the overall population is growing as life expectancy is increasing and fertility rates remain low. Over 30% of the UK’s workforce is over the age of 50 and the number of people in retirement has risen dramatically. The UK’s old age dependency ratio has risen from 52% in 2003 to over 56% in 2017 reflecting this change^[3]. Demographic changes have seen labour market participation for the 50-64 age group increase rapidly in the last 15 years, and this is particularly visible amongst women in this group. Population change and the steady increase in the average retirement age (currently 64.5 for men and 62 for women^[4]) will see the share of older people in the labour market continue to grow.

Looking ahead

As things stand the changing age composition of the UK population implies a decline in future labour supply, presenting a real a headwind for economic growth.

Over the last few years increasing participation rates, amongst women and older population segments, have been able to counterbalance the declining numbers entering the labour force^[5]. This has been in effect masking the issues posed by an ageing population.

There is room for further policy measures to support segments with still low participation rates to enter and or stay in the labour market. Tackling the gender pay gap and the skew created by men occupying top jobs are examples of such measures.

In the medium term alleviating the decline in labour supply through increasing participation rates will help, however this is not a long term solution. The UK, like its developed world peers, faces a profound change to the shape of its population and workforce over the next 10 years.

In the short term the UK faces more immediate risks than demographic change but it is important to be cognisant of wider structural shifts. We currently maintain an underweight to UK equities across our portfolios. This reflective of our view that Brexit uncertainty has had a significant impact on consumer sentiment and business confidence. We feel that other geographies in comparison, such as North America and Japan, present better opportunities for equity returns.

[1] Avoiding the demographic crunch: Labour supply and the ageing workforce – Policy report, CIPD

[2] Houses of Parliament POSTNOTE An Ageing Population

[3] ECB Economic Bulletin February 2018

[4] Houses of Parliament POSTNOTE An Ageing Population

[5] ECB Economic Bulletin February 2018