Free market, free women?

Free market, free women?

One of the many sound economic arguments for labour market deregulation in the 1990s was the greater flexibility it was supposed to bring to women juggling careers and family commitments[i]. This flexibility was promised to arrive in the form of individually negotiated contracts between employee and employer. By all counts, these mutually beneficial arrangements were meant to be far more accommodating than the traditional ‘award’ agreements set by federal or state authorities that determined each industry’s wages and leave. It’s been twenty years, however, and labour market deregulation has not shown itself to be a driving force for equality bargaining, nor has it helped at all to close the gender pay gap.

In many senses, deregulation was in line with contemporary economic theory. The Industrial Relations Reform Act of 1993 placed individual and collective enterprise bargaining at the centre of workplace agreements formerly dominated by the ‘award’. Such decentralised wage systems more closely resemble the ‘perfect market model’, where neither workers nor employers have more market power than the other, making it easier to generate the ‘market-clearing’ equilibrium wage (if you believe that labour markets can ever be cleared). Now, 38.7% of all employees’ contracts are set by individual arrangement, 44% by collective agreement and only 16.1% by the award[ii].

Yet for all the economic logic and social promise of deregulation, the gender pay gap persists. Today, 45 years on from the establishment of the “Equal Pay for Equal Work” principle, the gender pay gap between men and women sits at 17.1%, calculated using average full-time weekly earnings[iii]. The gap begins at 6.1% upon graduation from university, with female graduates earning a median starting salary of $51,600 to men’s $55,000[iv]. A Graduate Careers Australia survey found that for business and economics graduates in 2013, the median starting salary in first full-time employment was $47,000 for females and $50,000 for males.[v] This gap gradually widens as both men and women advance through their careers. Though women made up 51% of total graduates in the 1990s[vi], currently only 10.1% of the executive management, and 3.5% of CEOs at ASX200 companies are women[vii]. A quarter of these high-performing companies do not have a woman on their boards.

Of course, these statistics cannot be interpreted simply by stating that any female student at The University of Melbourne will go on to earn 82.9 cents to every dollar received by her fellow male students. Numbers have to be put in context, and to do that the reasons behind Australia’s persistent gender pay gap must be diagnosed. With regards to inefficacy of free labour markets in this case, the truth could be that we have not yet moderated all labour market rigidities, and even if we did, it might not deliver the higher female participation in the workforce necessary to close the gap. It is highly likely that labour market factors in recent years actually took the discrepancy further: among full-time employees in 2012, the gender pay gap was largest at 20.6% for those who had their pay set individually, slightly smaller at 16.9% under collective agreements, and surprisingly in favour of women under the award – they earned 2.5% more than men[viii].

There are good economic reasons not to bring back strong unionisation from the past (membership is declining across the developed world anyway). Not only does productivity and aggregate employment suffer under highly regulated labour markets, but also the average weekly wage set by ‘award’ is $935 compared to $1476 in the free-wage sectors[ix]. However, we do need to understand what is causing the gender pay gap, and what industrial relations can do about it.

A study conducted by the National Centre for Social and Economic Modelling (NATSEM) estimates that 60% of the gender pay gap cannot be explained by measurable differences in education, work experience, and training etc.[x]Other corroborating studies have put the unexplained variation at 70-90%[xi]. Put literally, this variation is attributed to the “negative effects of being female”. That sounds casually blasphemous, but these effects could be genuinely explained by: persistent labour market rigidities, ‘gender characteristics’ such as motivations and preferences towards family and career, and discrimination. In other words, it is not the measurable differences between men and women that are behind the gender pay gap; what matters is how these differences are rewarded in wages.

‘Gender characteristics’ are biological and social preferences and pressures that often influence the choices women make between working full-time, part-time or casual, not working, and raising a family. What is relevant towards gender pay gap is that interruptions to a working career can have repercussions on lifetime levels of pay. Not only does non-continuous work have effects on tenure length and affect the chances of being hired, human capital (skills and experience) can also deteriorate during a woman’s lifetime levels of pay. The value of human capital is further eroded by women’s lower returns to education relative to men in terms of pay and position, despite their generally higher levels of educational attainment[xii].

With regards to labour market factors, these ‘gender characteristics’ can also point women in the direction of female-dominated industries, like nursing and childcare, which typically pay less than male-dominated industries like architecture, mining and law (referred to as industry segregation). Although the proportion of men and women working full-time 35-40 hours a week is almost the same, 28% of men work 50+ hours a week, compared to only 10% of women[xiii]. Jobs with high labour intensity generally pay at the top end of wage spectrum. Choices leading women to drop out of the workforce to raise children for some years, which often coincides with their prime career years, can reduce the chance of promotion to senior managerial and executive positions upon return (referred to as occupation segregation).  The final labour market consideration is that the public sector is a larger employer of women than the private sector and also more gender-equality friendly:  the gender pay gap is 13.1% compared to 20.2% in the private sector based on full time ordinary time earnings[xiv]. Collective agreement wage-setting is also dominant in the public sector (89.8%), while individual arrangement is more popular in the private sector (47.2%)[xv].

Discrimination also has a place in the unexplained wage gap. Institutional biases in hiring practices that prioritise cultural fit end up favouring whoever looks and sounds like the management personnel[xvi].  More blatant discrimination is seen in the way male and female candidates with children can be perceived differently by recruiters, especially due to perceptions of lower commitment or reliability. In extreme cases this results in a per-child wage gap for women, referred to as the ‘motherhood penalty’[xvii]. Once in, bias could take the form of employers choosing to invest less in training for female employees, founded on doubts about their long-term future with the company, given historical ‘gender characteristics’ and the trends described above. This limits human capital development, feeding back into lower incentives for women to stay in the workforce.

Finally, policymakers did not anticipate how labour market deregulation would change the bargaining power of employees relative to employers. In a deregulated labour market, any employee bargaining individually will be better able to negotiate a favourable contract if s/he possesses skills that are in high demand. Another point is that women may just not be as strong at negotiating for themselves, lowering their ability to get wage parity in a deregulated market. Hence the promise of greater work flexibility for women through deregulation seems to have been half the deal: this did not and cannot happen automatically for women and many others. Ultimately, pay equity needs to be addressed by promoting more equal gender distribution across industries, and improving industrial relations for female-dominated industries until that happens. Changes tackling labour market inflexibility are slowly coming forth through new legislation: the Fair Work Act 2013 extended the right to request flexible working time arrangements (RTR) to more employees, a 2013 federal policy roundtable examined childcare infrastructure, and paid parental leave schemes are becoming increasingly (exceedingly) generous. Labour market deregulation may not have been a silver bullet, but for what it’s worth we can still depend on the democratic process for change.


[i] Reith, Hon. P. “Delivering on Work and Family: The Workplace Relations Act 1996,” Australian Bulletin of Labour vol. 25, no.3 (1999): 221-228.

[ii] “6306.0 – Employee Earnings and Hours, Australia, May 2012”, Australian Bureau of Statistics, released Jan 2013.

[iii] “Gender pay gap statistics,” Workplace Gender Equality Agency (WGEA), Australian Government, last modified March 2014,

[iv] “GradStats – starting salaries,” Workplace Gender Equality Agency, Australian Government, last modified August 2014,

[v] “2013 Graduate Salaries Tables and Figures,” Graduate Careers Australia, last modified July 2014,

[vi] “Participation in Education: Gender differences in higher education,” 4102.0 – Australian Social Trends, Australian Bureau of Statistics, 1994.

[vii] “Women in Leadership: Understanding the gender gap,” Committee for Economic Development of Australia (CEDA), June 2013.

[viii] “Gender pay gap statistics,” WGEA, 2014.

[ix] “Gender pay gap statistics,” WGEA, 2014.

[x] Cassells, R., Y. Vidyattama, R. Miranti and J. McNamara. “The impact of a sustained gender wage gap on the Australian economy”. National Centre For Social and Economic Modelling (NATSEM) report, November 2009.

[xi] Watson, I . “The gender wage gap within the managerial workforce: an investigation using Australian panel data,” Address to the 2009 HILDA Survey Research Conference, University of Melbourne, July 2009.

Grimshaw, D. and Rubery, J. “The adjusted gender pay gap: a critical appraisal of standard decomposition techniques,” Manchestor School of Management, Manchester, 2002.

[xii] Miller, 2005.

[xiii] Cassells et al., “The impact of a sustained gender wage gap on the Australian economy”.

[xiv] “Gender pay gap statistics,” WGEA, 2014.

[xv] “Gender pay gap statistics,” WGEA, 2014.

[xvi] “Women in leadership,” CEDA, 2013.

[xvii] Correll, S. “Getting a job: Is there a motherhood penalty?” American Journal of Sociology, vol. 112, No. 5 (2007): 1297-1339.