Germany and the adjusted gender pay gap

Imagine the following scenario at your place of work.

A male colleague gets paid all year, from January 1 to December 31. A female colleague in the same position only gets paid from March 18 and works the first 77 days of the year for free.

This scenario is fictional, but according to some measures, the 77 free days worked represents the pay gap in Germany, which with 21 percent, is the second largest gender pay gap in the European Union.

From second worst to second best

However, the gap differs wildly depending on how you measure it.

If we take into account factors such as education, work experience, company size and sector, the gender pay gap in Germany becomes as little as 6 per cent. This is called the "adjusted gender pay gap". Using this metric, Germany is second from the top.

Those findings were presented in a report by the Cologne Institute for Economic Research. The report is based on data from EU Commission and Eurostat studies that compare adjusted and unadjusted gender pay gaps in the years 2010 and 2014. 

The good news is that the data shows that both the unadjusted and adjusted gender pay gaps are decreasing across the EU, at 1.1 percent and 1.4 percent respectively.

But what do those calculations really tell us and why is it important to adjust the pay gap?

An attempt to explain or hide inequality?

The sum of all those factors that influence the pay gap and for which reasons can be given is called the "explained gap". Germany has the biggest "explained gap" in the EU. According to the report, 72 per cent of the pay gap in Germany can be justified and explained by the various aforementioned criteria.

The adjusted pay gap is not just a number that makes Germany look better, argues Jörg Schmidt, an economist from the Cologne Institute for Economic Research and the author of the report. A closer look at the factors behind the calculations can give an insight into the situation and can help identify where action is needed.

"These [factors] are hints where to start if the politicians are thinking about taking action. If you look at the choice of career that men and women pick and the uneven distribution across certain sectors, that can to a certain extent explain the average wage differences between men and women," says Schmidt.

For Dr. Yvonne Lott from the Hans Böckler Foundation, the adjusted pay gap is a rather misleading indicator. "The problem with this indicator is that in a way you disregard the dimensions of gender inequality in the labor market," she says. 

"You can make a study to underline the reasons, but concluding that the gender pay gap is only six per cent because everything else has been explained? That for me is not a correct conclusion."

Six per cent discrimination?

Ok, so what happens if we take out all those factors and only compare women and men with the same level of education, the same level of experience, and who work in the same position in the same industry? Women still get paid six percent less.

"When you really think what it means, it is still a lot," says Dr. Lott. "This six percent is really just due to the fact that employers when looking at employees say that women get less because they are women and men get more because they are men."

The authors of the EU Commission study, where the original data on the adjusted pay gap come from, however, say that "the adjusted gap must not be equated with discrimination as it incorporates unmeasured wage-relevant gender differences like actual work experience, job preferences or bargaining skills."

At the EU level

While in Germany a closer look at various factors makes the pay gap smaller, the situation is quite different in other EU countries. In Romania, Poland and Lithuania, for instance, the explained gap has a negative value. That means that when comparing the wages of women and men with the exact same labor-related characteristics such as experience and education, we get an even bigger disparity than the average gender pay gap.

It is not only the size of the explained gap that is important, but also the factors contributing to it, argues Schmidt. Three main aspects contribute to unequal pay in Germany, according to the report. These are the uneven distribution of men and women across various industry sectors, the issue of part-time employment and finally, of experience.

As the studies show, the uneven distribution of men and women across different industries is a common issue across all EU countries. In Romania, Hungary and Poland, aspects like education and occupation come into play. In Estonia, Latvia and Lithuania the size of the firm also has an impact on the pay gap. 

"The conditions in the countries are very different, that is why it is hard to give any general recommendations on the European level," says Schmidt. The report also criticized the EU Commission plans to introduce concrete measures on wage transparency at EU level.