Pay gaps, at both ends of the scale. And OECD on an overblown finance sector.

Two heavy-duty reports came out recently,  both relevant to the PP though from very different angles.

First a commission set up by the Resolution Foundation to look at the attempts to introduce Universal Credit produced its final report, Making the most of UC.  Mainly this grapples with the incredibly complex issues posed by the attempt to simplify the benefits system through Universal Credit.  I’d blow several gaskets if I even attempted to summarise it here, but one of the central issues is how to enable people work at lower levels to earn more, and to keep more of their earnings.   The current system often traps people in low-earning jobs, with the result that the major poverty problem is now around the working poor more than those without work.

This has a strong gender angle, not just because it’s usually women who are low paid but especially because they are usually the second earners in households needing two earners to make ends meet.  The tax and benefit systems (plural, because they are two, often conflicting, systems – if indeed they are systems at all) penalise many of these women, deterring them from working at all or levying a ridiculously high level of marginal taxation as benefits are  withdrawn and the household’s aggregate earnings remain below the poverty level.

The opportunity to move up the career ladder is crucial. At the launch meeting Paul Gregg pointed out the two things are needed for progression: increasing working hours, and moving up the pay scale.  Emma Stewart, from Timewise, added to the list:  employers need to provide better incentives for career progression and better support for those trying to make a career on a part-time basis.   Adequate rewards and decent prospects for part-timers is a constant theme in these blogs.  We can now see that it’s central to the reform of the benefit system that everyone agrees is needed.  Will these messages get through?

At the other end of the scale are our old friends the bankers.  Or rather, those working in the finance sector, many of whom are far from being ‘bankers’ even if they work in a bank.  Here the evidence comes from the OECD, in a paper on pay inequality in the finance sector.  Three things to note here:

a. Entirely predictably, men’s pay is higher than women’s in the finance sector in all countries.

b. The pay gap in finance is actually smaller  than in other sectors at the lower-earning end of the distribution.  In other words, women working in the lower grades  of the finance sector suffer less of a pay gap than do their sisters at equivalent  levels in other sectors.  But at at the top end the pay gap is even bigger – 29% in the top decile.  I don’t think anyone working at that level is going to feel much material pain (certainly not compared with those under scrutiny in the Resolution Foundation report), but it’s a big gap nonetheless, and hurts symbolically.

c.  These two points cover OECD countries generally. When it comes to inequality, the UK is a remarkable stand-out.   Fig 14 in the report gives separate charts for 18 countries.  The chart for the UK has to use a different scaling to all the others, because the inequalities are just so high at the top end.  None of the other countries need a vertical axis which goes beyond 40% for the gender pay gap;  in the UK it has to go to 70%.  An unenviable distinction, on balance.

I want to add in a link to the post which originally sent me to this paper, by Patrick Love of the OECD.  Patrick consistently writes witty and informative blogs that give excellent access to OECD material.  In this instance, he points us to a report which deserves really wide coverage.  It has the unprepossessing title Finance and inclusive growth.  What it shows – and here I am risking a summary – is that the finance sector, if it becomes too big, inhibits rather than encourages growth.  Once above a certain level of economic development, therefore, countries should pay attention to how large they want to allow this sector to become.  En plus, an overblown financial sector diverts talent from where it could be more usefully applied (now I’m into my own way of putting it – but this is the OECD’s message).

It’s the talent question that counts for PP.   Finance accounts for much of the income inequality, and therefore for much of the pay gap.  How far do we want women to aim for the vast remuneration available at the top of this sector?  If they don’t , that’s quite a block on greater pay equality.    Either way, the picture is one of distorted rewards for talent.