9 Gender - PayGap

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Gender Inequality:
Why Are Women Paid Less

than Men?
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No
07/2018-6406
This case was written by Morten Bennedsen, the André and Rosalie Hoffmann Chaired Professor of Family Enterprise,
Brian Henry, Research Fellow, Alexandra Roulet, Assistant Professor of Economics and Political Science, and Mark
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Stabile, the Stone Chaired Professor of Wealth Inequality and Professor of Economics, all at INSEAD. It is intended to
be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
The case and teaching note were generously financed by the André and Rosalie Hoffmann Research Fund for Family
Enterprise.
Additional material about INSEAD case studies (e.g., videos, spreadsheets, links) can be accessed at cases.insead.edu.
Copyright © 2018 INSEAD
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This document is authorized for educator review use only by Muzammel Shah, Other (University not listed) until Aug 2020. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
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Game, Set and Matching Pay 1
Martina Navratilova (left) was almost speechless
when she learned that her fellow commentator at
Wimbledon, John McEnroe (right), had been paid at
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least 10 times more than her. The seven-times
women’s singles champion accused the BBC of a
“shocking” pay gap. Navratilova took home £15,000
while McEnroe earned between £150,000 and
£200,000 for what she apparently thought was the
same job.
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Her colleague’s salary became public when the BBC was obliged to publish the salaries of its
highest-paid staff in brackets of £50,000 in July 2017. The BBC denied gender had anything to do
with the salaries, saying the two commentators had “entirely different” contracts. 2
While some observers might dismiss news stories like this as “gossip”, the background to this one
was legal. In 2010, the UK’s Equality Act required companies with more than 250 employees to
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calculate and disclose median hourly pay for all UK-based employees from a single “snapshot”
day, 5 April 2017.” 3 It included subsidiaries of global multinationals even if their headquarters
were outside the country.
Measuring the Gender Pay Gap

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To comply with the UK regulations, employers had to report the percentage difference between
average hourly earnings of male and female employees on that date. This gave the “unadjusted”
pay gap, which did not take into account differences in occupation, education, job experience and
other socio-economic factors. The choice of hourly (as opposed to weekly) earnings also smoothed
out differences in hours worked 4 to offset potential skewing from the greater proportion of female
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employees working part-time. Experts who study salary data, however, agree that no single
measure of the gender pay gap is without limitations.
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1 Cover photo at https://www.fawcettsociety.org.uk/close-gender-pay-gap, accessed 24 April 2018

2 http://www.bbc.co.uk/news/av/world-europe-43435117/john-mcenroe-paid-more-than-martina-navratilova-by-
bbc, accessed 17 April 2018
3 https://www.wsj.com/graphics/uk-pay-gap/, accessed 16 April 2018
4 http://www.pewresearch.org/fact-tank/2013/12/11/how-pew-research-measured-the-gender-pay-gap/, accessed
27 April 2018
Copyright © INSEAD 1
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Average Pay Gap: 9.9%
As of 4 April 2018, among the 10,500 corporations which reported median hourly wage data, the
median pay gap was 9.9%. The gap was wider in the construction and finance sectors, and narrower
in the accommodation/food and household sectors (see chart below).
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For employees of Virgin Money, for example, the
gender pay gap was 38.4%, the highest in the
finance sector. Starbucks and McDonald’s, in
contrast, reported no gender pay gap – they were
among 8% of companies that had no gap.
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Across Europe, the figures told a similar story.
According to Eurostat, “In 2016, the unadjusted
gender pay gap stood at just over 16% in the EU. In
other words, women earned on average 84 cents for
every euro a man makes per hour. Across member
states, the gender pay gap in 2016 ranged from just
over 5% in Romania and Italy, to more than 25% in
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Estonia, followed by the Czech Republic and
Germany, both almost 22%.” 5 In the United States,
the gender earnings gap remained between 18% and
20% from 2006 to 2015. 6
In the UK, equal-pay-for-equal-jobs had been a legal requirement for 47 years (since the Equal Pay
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Act of 1970). 7 Likewise, “equality between women and men is a fundamental principle of
European Union law that applies to all aspects of social life.” 8 Why, then, is the gender pay gap
still so widespread? 9
Gender Segregation in the Labour Market

No
Gender segregation is deeply engrained in the labour market. Men hold the majority of high-paid
jobs and senior roles, while women hold the majority of low-paid jobs in less productive sectors.
At Virgin Money, for example, it was revealed that women held 35% of high-paid jobs and 72.6%
of low-paid jobs. At Ryanair, the gender pay gap was a whopping 71.8%. This was typical of almost
5 http://ec.europa.eu/eurostat/documents/2995521/8718272/3-07032018-BP-EN.pdf/fb402341-e7fd-42b8-a7cc-
4e33587d79aa, accessed 18 April 2018
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6 The Parental Gender Earnings` Gap in the United States, by Yoon Kyung Chung, Barbara Downs, Danielle H.
Sandler, and Robert Sienkiewicz, Working Papers 17-68, Center for Economic Studies, U.S. Census Bureau,
2017
7 http://www.bbc.co.uk/news/business-42918951, accessed 24 April 2018
8 http://eige.europa.eu/gender-mainstreaming/toolkits/gender-impact-assessment/examples-european-union,
accessed 16 April 2018
9 The gender pay gap is defined as the percentage difference between average hourly earnings for men and women.
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all airline companies that reported data, since the pay of pilots (who are almost all males) is so
much higher than the pay of cabin crew (where most of the female employees work).
The pay gap may be even greater when bonuses are broken out. Consulting firm McKinsey reported
a 24% gap in median salaries in the UK, but a 76% gender gap in bonuses. The company cited “the
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disproportionately high number of men in senior roles”. 10
Iceland: Women Force the Government’s Hand

In Iceland, women earned on average 30% less than men did in 2016, even though the country had
passed an Equal Pay Act more than 50 years earlier. In protest against what was seen as an
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immovable block on pay equality, on 24 October 2016 many women in Iceland walked out of the
workplace at 14h38 – the time of day at which they had completed 100% of their paid work, as a
reminder that the remaining 30% of their working day was unpaid relative to men. 11
However, Iceland’s gender pay gap could disappear by 2022 if new legislation is enforced. Since
most employers failed to adopt official recommendations voluntarily, the country’s legislators
recently voted for a law that will stagger over four years gender pay equality. Said Rósa Guðrún
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Erlingsdóttir, head of the Equality Unit at Iceland’s Ministry of Welfare, “Equality won’t come
about by itself, from the bottom up alone. Our experience is that you need legislative measures to
move things forward. People accept that; we saw it with mandatory quotas for women on company
boards. If politicians want to wait until no one opposes it, it will never happen.” 12 By the end of
the four-year transition period, all firms will require certification documenting that they offer equal
pay. Compared to the UK and Denmark, which require firms to publish data, or Germany which
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obliges firms to publish data on request, Iceland’s intervention is by far the most drastic.
The USA: Halting Progress

Only one country has back-pedalled on the gender pay gap issue. On his arrival at the White House,
US President Trump reversed an Obama-era plan (from 2016) that would have required business
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in the country to begin collecting data on pay differences on the grounds of gender, race and
ethnicity. Private employers with over 100 employees and federal contractors with over 50
employees would have begun reporting pay data in spring 2018. However, Trump axed the plan in
August 2017, alleging that the data collection exercise would have been “enormously burdensome”
on business. 13 Evidence on pay will continue to be anecdotal, according to advocates of the Obama-
era legislation.
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10 https://www.mckinsey.com/uk/our-people/uk-gender-pay-gap-report, accessed 26 April 2018

11 http://www.bbc.co.uk/news/av/magazine-41516920/the-skills-calculator-closing-the-gender-pay-gap, accessed
17 April 2018, Citations taken from the BBC video from 00:15 to 00:20 minutes.
12 https://www.theguardian.com/world/2018/feb/20/iceland-equal-pay-law-gender-gap-women-jobs-equality,
accessed 16 April 2018
13 White House Won’t Require Firms to Report Pay by Gender, Race, by Ted Mann, WSJ, 29 August 2017
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Cheaper than Litigation
One of the reasons why countries like the UK require companies to reveal pay data is because it is
less costly than litigation. According to Sarah Fraser Butlin, Employment and Clinical Negligence
Barrister at Cloisters and Affiliated Lecturer in Labour Law at Cambridge University, “Equal pay
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is the single biggest issue facing employment tribunals, which have dealt with 700,000 claims in
the past 15 years.” 14 Currently, court actions on the part of employees have replaced collective
bargaining as a force for social change in this area, but this is an “extraordinary inefficient way to
bring fairness to the pay system,” Butlin said. 15 Furthermore, litigation costs millions for
government and business alike. 16
To avoid costly litigation, organizations can adopt internal governance rules that pro-actively point
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up lapses in gender pay equality. Headed by Christine Lagarde, the International Monetary Fund
(IMF) conducted such a study using EDGE (Economic Dividends for Gender Equality), a global
assessment methodology and business certification standard for gender equality. 17 “The main
results, based on the EDGE framework for FY 2016, show only a small gender pay gap largely
explained by differences in staff attributes. On average, the gender pay gap is between 2%-5% for
the sample, and close to zero for economists,” reported the IMF. 18
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Some companies have adopted the Gender Impact Assessment (GIA), a toolkit that aims to achieve
a significant impact on policy design and planning in order to ensure adequate equality outcomes
(see Exhibit 1). 19
Absence of Women in Leadership Roles

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“The private sector has long failed to promote women to its highest ranks” said a recent Fawcett
report, which found only six or seven women at the top of FTSE 100 organisations in 2018. 20
Across Europe, McKinsey found that “only 17% of executive committee members are women, and
women comprise only 32% of the corporate boards of companies listed in the major market
indices.” 21
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Even in the Nordic countries, women are making headway slowly. A research report by Boston
Consulting Group found that “27% of all leadership positions at Danish companies were held by
14 Are litigation and collective bargaining complements or substitutes for achieving gender equality? A study of the
British Equal Pay Act, by Simon Deakin, Sarah Fraser Butlin, Colm McLaughlin, Aleksandra Polanska,
Cambridge Journal of Economics, Volume 39, Issue 2, 1 March 2015, Pages 381–403,
https://doi.org/10.1093/cje/bev006
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15 http://www.bbc.co.uk/programmes/b05tlvbv, accessed 16 April 2018

16 Ibid.
17 http://edge-cert.org/, accessed 18 April 2018
18 http://www.imf.org/external/np/div/2017/index.pdf, accessed 18 April 2018
19 http://eige.europa.eu/gender-mainstreaming/toolkits/gender-impact-assessment, accessed 18 April 2018
20 Sex and Power 2018, Helen Jewell and Andrew Bazeley, Fawcett, April 2018, p. 15
21 Women Matter 2016: Reinventing the workplace to unlock the potential of gender diversity, McKinsey, p. 4
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women (compared with 33% for Norwegian companies and 35% for Swedish companies), and
those numbers have been essentially flat for the past decade.” 22 In the EU overall, women occupy
35% of all managerial positions.23
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Absence of Role Models
Role models play an important role in women’s career and education choices. 24 When girls think
about making a career in business, where are their role models if so few women hold high-level
positions in business? In contrast, when they think about a career caring for children, there are role
models at almost every level. No wonder that women represented just 3% of the 13,280 engineering
apprentices in the UK, but 93% of the 25,840 children’s care apprentices. 25 McKinsey found that
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women in the UK are “least represented in high-productivity sectors, including science,
technology, engineering, and math (STEM), and least represented in higher-salaried occupations,
including skilled trades and managerial and leadership positions, which report the highest densities
of skill shortages.” 26
A US study found that the gender pay gap had narrowed dramatically in the 30 years since 1981
because women had been “increasing their relative labour market qualifications and commitment
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to work. … on these two basic measures of human capital, schooling and actual labour market
experience, women made important gains during the 1981-2011 period, reversing the education
gap and greatly reducing the experience gap.” 27 According to Eurostat statistics in 2017, in Europe
nearly 80% of women aged 20-64 with higher education were employed, compared to 43% of
women without. 28
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Raising Kids, Lowering Salary

Many studies trace the opening of the gender gap to when a woman has her first child. The UK
Institute for Fiscal Studies found that by “the time a couple’s first child is aged 20, many mothers
earn nearly a third less than the fathers.” 29 In a study of Danish administrative data from 1980-
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2013, researchers discovered that “the arrival of children creates a gender gap in earnings of around
22 Creating Value with Gender Diversity in Danish Companies, by Mai-Britt Poulsen, Thorsten Brackert, Stine-
Marie Skov, and Louise Herrup Nielsens, BCG, The Boston Consulting Group, January 2016
23 http://ec.europa.eu/eurostat/documents/2995521/7896990/3-06032017-AP-EN.pdf/ba0b2ea3-f9ee-4561-8bb8-
e6c803c24081, accessed 18 April 2018
24 More Women in Tech? Evidence from a Field Experiment Addressing Social Identity, by Maria Guadalupe and
Lucia del Carpio, INSEAD Working Paper, 2017
25 Equality. It’s about time, 1866-2016, Fawcett, 2016, p. 6
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26 https://www.mckinsey.com/global-themes/gender-equality/the-power-of-parity-advancing-womens-equality-in-
the-united-kingdom, accessed 26 April 2018
27 The Gender Wage Gap: Extent, Trends, and Explanations, by Francine D. Blau and Lawrence M. Kahn, Journal
of Economic Literature, American Economic Association, vol. 55(3), pages 789-865, September 2017, p. 794-
795.
28 http://ec.europa.eu/eurostat/web/main/news/themes-in-the-spotlight/womens-day-2017, accessed 18 April 2018
29 http://www.bbc.com/news/business-42939584, accessed 24 April 2018
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20% in the long run, driven in roughly equal proportions by labour force participation, hours of
work, and wage rates.” 30
In a study of US data, researchers found that as measured in 2011 dollars “women earn around
$20,500 less than men in our sample for all observed periods, but that amount is smaller, at $12,600
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before their first child is born, and larger, at around $25,100, after their first child is born.” 31
In March 2018, the Financial Times found that an MBA did little to help female managers bridge
the gender pay gap: “Female graduates from the world’s top-10 business schools ranked by the FT
experience a pay gap of 79% three years after their course ends. In many regions of the world, the
premier business qualification even exaggerates gender pay difference.” 32 In a similar study of
MBA students, researchers found that “the earnings of men and women start off approximately
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equal, but female MBAs gradually lose ground to the male MBAs as they have children. This is
due to less job experience, more career discontinuity, and shorter work hours.” 33
Women’s Work is Undervalued

“Many organizations consider the gender pay gap to be acceptable if men and women do different
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jobs or that men hold more senior positions than women,” said Hazel Conley, a professor at the
University of the West of England. 34 NGOs such as the Fawcett Society, a UK charity for gender
equality and women’s rights, are trying to shift the conversation away from these one-dimensional
arguments. “Women earn significantly less than men over their entire careers for complex, often
interrelated reasons. These include differences in caring responsibilities, more women in low-
skilled and low-paid work, and outright discrimination.” 35
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Direct discrimination against women in the labour market – paying less for equal work and equal
skills – is prohibited by law in European countries. However, a more persistent form of
discrimination is the way women are more likely to take low-paid, less productive jobs. Differential
treatment and conditioning of boys and girls from early childhood ultimately results in different
educational and career choices.
No
In some emerging countries, discrimination takes more extreme forms. In a biennial report, Women,
Business and the Law 2018, the World Bank states that globally 2.7 billion women are legally
restricted from having the same choice of jobs as men. 36 Sarah Iqbal, the programme manager,37
30 Op. Cit., Children and Gender Inequality: Evidence from Denmark

31 Op. Cit., The Parental Gender Earnings Gap in the United States, p. 3
32 https://www.ft.com/content/bc1040c8-3119-11e8-ac48-10c6fdc22f03, accessed 16 April 2018
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33 Op. Cit., The Parental Gender Earnings Gap in the United States, p. 3
34 http://money.cnn.com/2018/04/04/news/economy/gender-pay-gap-by-industry, accessed 25 April 2018
35 https://www.fawcettsociety.org.uk/close-gender-pay-gap, accessed 24 April 2018
36 The World Bank has been well known for its pioneering work on improving the business climate in emerging
countries and to this end introduced gender-specific data in 2015 for its Doing Business reports.
37 https://blogs.wsj.com/economics/2018/03/29/104-countries-block-women-from-certain-jobs-and-other-legal-
barriers/, accessed 17 April 2018
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sees a need to challenge the status quo: “I don’t understand why, in 2018, there’s 104 countries that
have job restrictions on women.” The research team introduced scores evaluating seven gender-
specific dimensions, showing that the UK, New Zealand, Spain, Canada and Australia had made
significant progress in all of them. “The lowest-performers were nations in the Middle East and
North Africa, including Saudi Arabia, Iran, Sudan, Qatar, Syria and Yemen. In all of these but
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Syria, women are required by law to obey their husbands.” 38 The report, and similar ones published
by the OECD and the UN, are designed to put pressure on such countries to “change their laws to
equalize treatment of women.”
The Price of Productivity
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In his classic book, The Age of Diminished Expectations (1997), Nobel prize-winning economist
Paul Krugman wrote, “Productivity isn’t everything, but in the long run it is almost everything.” 39
His insights apply particularly well to the current debate. Indeed, the UK government introduced
the gender pay gap transparency regulations, according to Sam Smethers, Chief Executive of
Fawcett, because it believed “the economy will be stronger, will perform better” if the gender pay
gap were to be closed.
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Yet international researchers who used Danish data found that gender transparency regulations
introduced in Denmark in 2006, caused wages to stagnate for males and productivity overall to fall.
In a study of firms employing 35-50 people, a significant percentage of male employees were not
successful at getting a pay rise following the 2006 legislation. In addition, female employees were
likely to get the same pay increases as before. 40
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Contrast that with McKinsey’s forecast that bridging the gender gap could add “$12 trillion to the
global GDP and contribute to greater gender equality in leadership positions.” 41 In addition,
McKinsey predicted that closing the gap could add 240 million workers to the world’s labour force
in 2025. 42
No
38 Ibid.
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39 The Age of Diminished Expectations, by Paul Krugman, 3rd edition, MIT Press, 1997, p. 11
40 The Real Effects of Transparency on Within Firm Gender Pay Disparities, Morten Bennedsen, Elena Simintzi,
Margarita Tsoutsoura and Daniel Wolfenzon, cited in a presentation, April 2017
41 Women Matter 2016 Reinventing the workplace to unlock the potential of gender diversity, McKinsey&Company,
p. 6
42 Women Matter, Time to accelerate, Ten years of insights into gender diversity, McKinsey&Company, October
2017, p. 8; and
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Questions for Discussion
1. Why are women paid less? Why are men paid more?
2. What does the gender pay gap mean and how do we measure it? Cite the limitations that skew
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the gap one way or another.
3. Why is the gender pay gap less in areas like care-providing services and wider in areas like
financial services?
4. What form does discrimination against women take in developed countries and in emerging
countries? Cite examples of both.
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5. What kind of business initiatives or public policies could reduce the gender pay gap? Your
response should consider the length of time it would take to reduce the gap significantly.
6. Do we need governments to enforce equal pay or will businesses voluntarily take the decision
by themselves? Cite three effective ways that governments can intervene. What are the
arguments for and against government intervention?
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No
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Class Simulation Exercises43
Objective: Choose a sector scenario for your group, and prepare a presentation for the class.
1. Finance: You have just landed an offer for a job at a bank, with a six-figure salary before the
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signing-on bonus. A week before you are due to start, you get a call from the recruiter asking
for one last round of interviews, though she tells you it is nothing to worry about.
You are asked to present a report on how you would narrow the gender pay gap at the financial
institution. You learn the following:
a. 15% of those in the highest pay quartile are women;
b. 50% in the lowest pay quartile are women;
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c. The median bonus for women is 70% lower than for men.
2. Public Administration: You have just been offered a job in the purchasing department of your
local government. It is a high-level role where you will head up a new e-auction initiative to
move the agency to an online platform. The pay is at the G15 level (G20 is the highest) and the
benefits are great, especially the retirement matching scheme. A week before you are due to
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start, you receive a call from the recruiter asking for one last round of interviews, though she
tells you it is nothing to worry about.
You are asked to present a report on how you would narrow the gender pay gap at the agency.
You learn the following:
a. 25% of the G15-G20 are women;
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b. 45% of the G5-G10 are women;

c. Pensions for women are 70% lower than for men.
3. Care: You have just been offered a top managerial position at head office of a fast-growing
chain of hospices. It is a high-level role where you will head up a plan to expand the chain to
high-net-worth retirement communities in the south of the country. Your competitor is making
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money hand over fist in that under-served market. The basic salary is decent, but the
commission on every new deal is outstanding, plus the retirement matching scheme is excellent.
A week before you are due to start, you receive a call from the recruiter asking for one last
round of interviews, though she tells you it is nothing to worry about.
You are asked to present a report on how you would narrow the gender pay gap at the chain of
hospices. You learn the following:
a. 10% of the staff at head office are women;
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b. 90% of the hospice staff are women;

c. Pensions for women are 80% lower than for men.
43 These exercises are optional and mainly designed for MBA participants.
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Exhibit 1
Gender Impact Assessment (GIA) Toolkit 44
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No
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44 http://eige.europa.eu/gender-mainstreaming/toolkits/gender-impact-assessment, accessed 18 April 2018, p 7 of

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IN1506

Why Are Women Paid Less

Measuring the Gender Pay Gap

1 Cover photo at https://www.fawcettsociety.org.uk/close-gender-pay-gap, accessed 24 April 2018

Gender Segregation in the Labour Market

Iceland: Women Force the Government’s Hand

The USA: Halting Progress

10 https://www.mckinsey.com/uk/our-people/uk-gender-pay-gap-report, accessed 26 April 2018

Absence of Women in Leadership Roles

15 http://www.bbc.co.uk/programmes/b05tlvbv, accessed 16 April 2018

Raising Kids, Lowering Salary

Women’s Work is Undervalued

30 Op. Cit., Children and Gender Inequality: Evidence from Denmark

The Price of Productivity

b. 45% of the G5-G10 are women;

b. 90% of the hospice staff are women;

44 http://eige.europa.eu/gender-mainstreaming/toolkits/gender-impact-assessment, accessed 18 April 2018, p 7 of

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