Income inequality between men and women – a cause for concern or a hidden misconception?

The income gap between men and women depends on many factors, including the field in which a person is improving, the stage of development of a company, the personal characteristics of both sexes, etc. A study by the Institute of Economic Affairs conducted in 2007, for example, shows that the income gap between men and women in the sales or consumer services sector is the smallest. Moreover, in an average company that employs fewer than 25 people, the inequality averages 12.4%, while in a company that provides jobs for 25-49 employees it reaches 18.4%.[1]

Looking at the personal characteristics of men and women, the change in income is most obvious in different age groups. According to a study conducted by the IEA in the UK, the difference in income between men and women increases with increasing age and the creation of a family. In the age range of 18-21 and 22-29 years, the difference in labor remuneration is almost imperceptible, while entering the 30s and 40s, the direction changes significantly. Men's income increases, while women observe the opposite trend. Perhaps such a difference can be explained by pregnancy and childbirth in the fairer sex and the time spent raising newborn children, which more or less slows down the development of women in the labor market, respectively, their productivity. This fact should not be ignored, considering that labor capital from the point of view of each employer is an important prerequisite for optimizing costs, expanding the business and increasing profits.

The average wage for full-time employees, including singles or divorced people, is £8.72 per hour for men and £8.82 per hour for women, while for married couples with one or more children it varies between £10.63 and £11.22 for men and £9.32 and £7.24 for women.[2] It is quite normal that if a woman has chosen to devote herself exclusively to caring for her child for a long time, she will lose her professional development and position in the labor market, returning to a working environment with lower wages. Similarly, the transition from full-time to part-time employment is no less associated with a decrease in income. Nowadays, however, more and more women are devoting themselves to their career development and starting a family later, combining work with maternal care. Thus, the "gram gap" in income between men and women is becoming a necessary test today, the assessment of which only the market can write.

In parallel, in recent years, state intervention in the regulation of "moral and ethical standards" in natural processes, which include the birth and upbringing of newborn members of a family, has also increased. In 1994, the European Court of Justice allowed some privileges for expectant mothers - the period of paid maternity leave has been increased more than once - from 26 weeks, initially in 2005. Unpaid leave is also allowed under the protection of the law and a guarantee that the current employer will not have the right to dismiss women who are absent for a long time due to maternity. To this can be added the privilege of choosing between full-time work or flexible working hours.[3]

However, the recently proposed social policy for maternity remains unmatched. The proposed changes are expected to affect the duration of maternity leave, which should be increased from three months to three years, during which the government will compensate women with subsidies for their newborn children. According to the new legislative initiative, the state will provide compensation equivalent to the minimum wage (1,560 yuan or $253 per month on average in Beijing after the latest increase in April), regardless of whether expectant mothers stay with their employer or leave. According to the chairman of the Beijing People's Congress, such a policy will not harm employment and the reluctance of employers to hire young women who have yet to start a family, arguing that women have a longer life expectancy than men.[4]

Unfortunately, very often the assumptions about the possible consequences of implementing one or another policy diverge from the achieved result. Aside from the "moral" appeals of state leaders about the key role of the mother in raising and educating a child from the earliest age, subsidies and the wrong incentives created through them send rather negative signals towards the sustainable development of the labor market.

Government subsidies would largely stimulate the birth rate. This temporary situation would more or less allow government planners to win the approval of their future voters, exercising their political authority on the backs of everyone else. The funds that are redistributed in the form of subsidies are essentially cash from the positive financial results of businesses and the incomes of working people.

The government, in its role as a state administrator, does not create wealth, but only redistributes what has already been created. The problem is that instead of using it for effective and consumer-relevant needs, the funds withdrawn from the private sector are used for projects that are judged to be effective (or not) due to the impossibility of carrying out the economic calculation. If the state subsidizes all mothers until the child is three years old, considering that their number will increase in view of the privilege granted, the available funds will not remain a constant value. Encouraging birth rates in this sense will be at the expense of taxpayers. The total amount of the subsidy will increase, and the financing will hardly come from redirecting financial privileges destined for some other groups close to power. Why? Because it is easier for all political leaders who have temporarily come to power to accumulate budget deficits, issue new government debt, and if they are lucky enough to stay in power for longer, to subsequently devalue them with monetary incentives and pouring artificial liquidity into the economic system.

Returning to China's social policy, it is worth noting that although the Chairman of the People's Congress excludes an option in which it would be more profitable for employers to hire more men than women, such a scenario is entirely possible and realistic. The most striking example of the ineffectiveness of the results of such state social policies is the increase in the minimum wage. Instead of helping poverty and encouraging employment, many people working for a lower wage than the legally established minimum are deprived of the opportunity to work legitimately on the labor market at all, as they become too expensive a pleasure for their employer. Economic processes are influenced by the human action of all market agents, as a result of which such attempts at forecasts, political initiatives and accurate calculation too often become a reason for an unexpected surprise and subsequent apology.

Sources:

[1] – Should we mind the gap? Gender Pay Differentials and Public Policy, J. R. Shackleton,  IEA, 2008;

[2] – ibid.;

[3] – ibid.;

[4] – http://www.marketwatch.com/story/china-legislator-proposes-worlds-best-maternity-policy-2014-08-12

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