PARTICULAR APPROACHES TO DISCRIMINATION IN LABOUR MARKET

PARTICULAR APPROACHES TO DISCRIMINATION IN LABOUR MARKET Hana Vlachová Abstract: The article deals with the problem of gender discrimination which is a cause of gender pay gap meaning that women are less remunerated than men for the same work done in the same quality. The article shortly presents four economic models explaining gender discrimination in labour market monopsonistic discrimination, Becker s taste-fordiscrimination model, statistical discrimination and crowding model. It also shows gender discrimination in labour market in the Czech Republic on ordinarily available data from the Czech Statistical Office. Keywords: crowding model, discrimination, gender pay gap, monopsonistic discrimination, statistical discrimination, taste-for-discrimination model 1. Introduction Since 19 th century there were fundamental changes in women s position in the labour market. Women shifted from keeping households and taking care of children to factories and other parts of labour market. The biggest changes came with the 2 nd World War. However differences between men and women have been still persisting in the labour market and women were employed in branches which were considered to be traditionally female professions as nurses, kindergarten and elementary school teachers or librarians. Although the situation began to change in the 1970s and many disparities have been reduced [1] men and women still do not have the same conditions in the labour market. The main problem of contemporary labour market, from the women s point of view, is different remuneration for work done by them and by men. 2. Gender Pay Gap Gender Pay Gap (GPG) is the main tool for measuring the differences in remuneration of men and women in labour market. The unadjusted GPG is an important indicator used within the European employment strategy to monitor differences in payment between men and women. GPG can be defined as the difference between men s and women s pay, based on the average difference in gross hourly earnings of all employees [2]. From Eurostat estimates it is obvious that there are considerable differences between the European Union member states. Since it concerns only salaried people GPG is not an indicator of the overall inequality between women and men. It is necessary to look at GPG in conjunction with other indicators linked to the labour market, in particular those ones that reflect the different working patterns of women. In countries with low female employment rate (e.g. Italy) GPG is lower than average, which could be a reflection of the small proportion of low-skilled or unskilled women in the workforce. A high GPG is 74

usual in highly segregated labour market with women more concentrated in a restricted number of sectors or professions (e.g. Czech Republic, Estonia and Finland) [3]. For example the public sector employs more than 3 times as many women as men in the Czech Republic [4]. A high GPG is also usual in labour market with a significant proportion of women working part-time (e.g. Germany and Austria). Also GPG can be influenced with institutional mechanisms and systems on wage setting. [3] GPG brings many consequences which affect big amount of people. Current GPG affects not only women, it likely affects their children and future generations too [5]. GPG is also cause of lower living standard and poverty of women in their old age, because due to lower earnings women tend to have lower pensions. This issue is very important especially because of longer longevity of women. 3. Models of discrimination in labour market All above mentioned effects are results of discrimination in labour market. International Labour Organization [6] defines discrimination as treating people differently because of certain characteristics, such as race, colour or sex, which results in the impairment of equality of opportunity and treatment. In other words, discrimination results in and reinforces inequalities. Many of occupational differences between men and women still remain and women face two main risks of undervaluation. First they will be paid less than men for the same efficiency within the same job, and second they will be employed in jobs or occupations which are undervalued themselves [7]. Grimshaw and Rubery [7] explored the social construction of value and found five factors contributing to women s lower earnings. The first factor is visibility which means that women s skills are often not visible; their jobs tend to be aggregated in large and undifferentiated pay group. The second is valuation of women s skills where pay and grading structures are still often based on male-type skills. Third is vocation meaning that women s skills are often treated as natural and considered to provide opportunities for high levels of job satisfaction that justify lower pay. Fourth is value added, meaning that women tend to be found in low value added or labour intensive occupations. The last one factor is variance, which means that women s lives are different from men s and women are considered to occupy a separate sphere that is non commensurate with men s sphere. [7] Fernández and Pena-Boquete [8] explored consequences of gender discrimination both microeconomic and macroeconomic. They aimed to linkage between productivity and gender wage discrimination. They found that gender discrimination has consequences for the whole labour market, especially on productivity. Their preliminary results said that an increase of the degree of discrimination causes a decrease of productivity and a change in the employment allocations between men and women. Because of these serious consequences discrimination in labour market is a topic that was given significant attention in the literature in recent decades. Economists have been looking for explanation on discrimination and governmental bodies and other institutions are still working on decreasing of this negative phenomenon. Edgeworth [9] was the first who applied neoclassical theory to discrimination in wages of men and women, but the main study has been performed by Becker in 1957. Till present four most important models for describing and explaining the discrimination of women in labour market were created. The first explanation of discrimination in labour market is the theory of monopsonistic discrimination. However this concept does not get much credit as an explanation of gender differences in remuneration. The author of the idea of monopsonistic 75

discrimination in the labour market is Joan Robinson [10]. The concept is simple. A single buyer, a monopsonist, sets wages below marginal revenue product and the more inelastic the labour supply is the lower are wages relative to productivity. The monopsonist obtains higher profit by differentiating wages between groups with different elasticities of labour supply. Employees with more inelastic labour supply will earn less. One way for differentiating employees is differentiating by gender. Today economists do not consider this theory to add much to the understanding of the overall GPG. [11] The second model for explaining discrimination in labour market is taste-fordiscrimination model created by Gary Becker in his book The Economics of Discrimination [12]. The theory is based on relating of prejudiced behaviour to preferences that economic subjects may have with respect to clearly identified groups. According to this theory the worker s type is defined by an observable characteristic (for example gender) that induce a different behaviour in the employer because the employer has distaste for working with people with these characteristics and is willing to pay a price to avoid contact with this type of employees. This behaviour is relevant in the bargaining process to determine wage and it happens conditionally on the realization of the meeting. Taste discrimination is still the most widespread model of prejudiced behaviour and has already been combined with search models to study gender discrimination in labour market. [13] Other group of models dealing with discrimination in labour market includes statistical discrimination models. Statistical discrimination refers to the phenomenon of an employer using observable characteristics of individuals as a proxy for unobservable characteristics. The observable characteristic in this case is gender, in other cases can include recognizable physical traits, as race and ethnicity or endogenously chosen characteristics, such as club membership or language. In statistical discrimination models the employers are utility or profit maximizers, and in most of these models, they are imperfectly informed about relevant characteristics of the potential employees, such as their productivity or qualifications, which makes them motivated to use group statistics as proxies of unobserved characteristics. [14] Employer's preferences of male employees can come out from his previous statistical experience with the two groups (males and females), or it might come out from prevailing sociological beliefs that women deliver on the average an inferior performance. [15] The last model connected to discrimination in labour market to be described is Bergmann s crowding model. In this model there is no wage discrimination. Crowding model is based on assumption that women are allowed to enter occupation B, but not occupation A. They are pushed into occupation B with relatively large supply of workers to demand. Marginal product of labour is declining therefore the large supply of worker in occupation B cause a low marginal product of labour and a low wage. In occupation A with smaller supply of workers the situation is reverse. This model is based on wages equal to marginal product; therefore there is no wage discrimination. Female employees have a low marginal product because of female occupations and that is the reason for their lower remuneration. [16] 76

4. Discrimination in labour market in the Czech Republic The Czech Republic also deals with the problem of gender discrimination in labour market and GPG. It can be seen from following graphs. Graph 1 shows medians of earnings by CZ-NACE in 2011 in the Czech Republic. It is obvious that in particular branches are men s earnings markedly higher than earnings of women; especially in information and communication branch and financial and insurance activities. CZK 50 000 40 000 30 000 20 000 10 000 0 Medians of earnings by CZ-NACE in 2011 A B C D E F G H I J K L M N O P Q R S women men CZ-NACE code Graph 1: Medians of earnings by CZ-NACE in 2011. Source: Based on data from [17] Legend: A Agriculture, forestry, and fishing; B Mining and quarrying; C Manufacturing; D Electricity, gas, steam and air conditioning supply; E Water supply, sewerage, waste management and remediation activities; F Construction; G Wholesale and retail trade, repair of motor vehicles and motorcycles; H Transportation and storage; I Accommodation and food service activities; J Information and communication; K Financial and insurance activities; L Real estate activities; M Professional, scientific and technical activities; N Administrative and support service activities; O Public administration and defence, compulsory social security; P Education; Q Human health and social work activities; R Arts, entertainment and recreation; S Other service activities. According to the Czech Statistical Office payment of women is lower than payment of men in the Czech Republic. Women get approximately 75 percent of men s earnings. It is shown in graph 2. 77

CZK 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 Average gross monthly earnings and medians of earnings 2008 2009 2010 2011 year Average earnings - women Average earnings - men Median of earnings - women Median of earnings - men Graph 2: Average gross monthly earnings and medians of earnings Source: Based on data from [17 From graph 2 it is also obvious that median of earnings is smaller and decreasing. Median is better measurement for differences in earnings of men and women, because it is not influenced with small amount of people with above-average high payment. The situation on labour market in the Czech Republic is worse for women as can be seen from graph 3 which shows higher unemployment rate of women than men. persons Unemployment in the Czech Republic in 1993-2011 (thousands) 300,0 250,0 200,0 150,0 100,0 50,0 0,0 1993 1995 2000 2005 2009 2010 2011 year women men Graph 3: Unemployment in the Czech Republic in 1993-2011 Source: Based on data from [17] 78

Higher unemployment rate and lower earnings of women are the fact in spite of their higher level of education. Graph 4 shows there are more female graduates with secondary education with A-level examination and also more university graduates among women in the Czech Republic. persons (thousands) 90,0 80,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0,0 Basic and without education Education in the Czech Republic in 2011 Secondary without A-level examination Secondary with A-level examination University education level women men Graph 4: Education in the Czech Republic in 2011 Source: Based on data from [17] Jurajda [4], Mysíková [18, 19] or Brožová [20] have studied GPG in the Czech Republic in detail. The Czech Republic is according to European Union s effort working on improving women s situation in labour market but from data which have been shown in this article it is obvious, even without complicated analysis, that there is still a lot to be improved. 5. Conclusions Since 19 th century there were many changes in labour market and today women are commonly engaged in earning financial resources for their families. However there are still big disparities in remuneration of men and women. These disparities differ in dependence on country and other factors. Economists have been exploring this issue since the beginning of 20 th century and have created several models and theories to be able to explain gender discrimination and GPG as its consequence. Even the Czech Republic is not an exception and it also deals with remuneration inequality. Because of serious negative consequences of GPG which cause lower living standard and poverty of women in their old age this issue should be in the centre of interest of economists and governmental bodies. References [1] BLAU, Francine D. a Lawrence M. KAHN. Gender Differences in Pay. Working Paper 7732. 2000. Available from: http://www.nber.org/papers/w7732. [2] EUROPEAN UNION. Tackling the gender pay gap in the European Union. Luxembourg: Publications Office of the European Union, 2011. ISBN 978-92-79-20772-3. Available from: http://www.ab.gov.tr/files/ardb/evt/1_avrupa_birligi/1_9_politikalar/1_9_9_ ekonomi/tackling_gender_pay_gap_in_eu.pdf. 79

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