Does the minimum wage close the gender pay gap?

National minimum wage policies can partially (and occasionally completely) eliminate gender pay gaps amongst the lowest paid.

National minimum wage policies can partially (and occasionally completely) eliminate gender pay gaps amongst the lowest paid, researchers from the Luxembourg Institute of Socio-Economic Research (LISER) have found. It is still standard practice for men to be paid more than women for the same work on average, even allowing for differences in skills and experience. However, legal intervention can cut the “sticky floor syndrome” where women’s low pay fails to rise to match that of men.

An original view

LISER participated in research which took a fresh look at this question. They conducted a unique cross-national comparison of the situation in the UK and Ireland, countries which introduced their minimum wages in 1999 and 2000 respectively. Previous studies have tended to look just at the evolution of minimum wages in a single country. The researchers also used an innovative statistical technique for the first time. This enabled them to create counterfactual models of what would have happened under different scenarios in each country.

Previous studies found that, men earned 20-24% more than women at different pay scales from 1997-2001 in these two countries. For the lowest 10% of wage earners the gap was 24% in the UK and 25% in Ireland 1996-2001. None of these figures are adjusted for job characteristics and personal profiles, but a pervasive disparity is clear.

Detailed data, fine analysis

To understand the detail of gender pay inequality, the researchers studied information gleaned from in-depth interviews conducted by the national statistics offices. Data for 4,563 people was drawn from the “Living in Ireland” survey, while the lives of 7,732 people were detailed in the “British Household Panel Survey”. It was informative to study these two countries as they have a similar history of national collective pay bargaining. However, Ireland has a tradition of greater social conservatism than the UK, particularly as regards women’s workplace rights.

The researchers constructed models for real and predicted wage levels, with the figures adjusted for “human capital effects”, that is qualifications, experience, job level, industry. Removing these factors revealed the “unexplained” salary differences, potentially linked to gender discrimination.

Minimum wages cut the gap

Even though concern about gender equality was not the primary motivation for introducing a minimum wage, it led in Ireland to a reduction in the gender wage gap of between 5-15 percentage points at lower wage levels. This led in some instances to the complete elimination of the malefemale pay differential. Given that women work disproportionately in low paid jobs this is a significant step forward for wage equality. There was also a knock-on effect, with a partial reduction in the gender pay gap for salaries up to 1.4 times the minimum wage. However, this effect peters out and has little impact on mean and median wage differentials. These findings were consistent with other studies.

Curiously, the data showed no narrowing of the pay gap in the United Kingdom. Analysis of the survey data suggests this was due to substantial numbers of employers not complying with minimum wage laws or people working in the black market. Substantial numbers of women reported earning less than they were legally entitled. The researchers used new, sophisticated techniques to correct for this anomaly and found that if the law had been obeyed there would have been more pay equality in the UK as well.

A caveat of this research is that the analysis focused on wage differentials and did not consider effects on employment -jobs may be lost when minimum wage regulations are put into force, and women may or may not be affected more than men-. Previous research has shown that employment effects have been small in both Ireland and the UK when the minimum wage legislation was introduced, yet this remains a contentious issue.

This project was supported by the National Research Fund, Luxembourg