With the closure late last year of submissions on the Ministry of Women's Affairs discussion document, "Next Steps Towards Pay Equity", the issue of equal pay for equal work is on the political agenda.

It sounds like a worthy goal. But there are sound arguments against Government policies designed to artificially increase wages with the objective of eliminating the pay gap between men and women.

Before thinking about policy options, it is useful to look at the extent of the difference in men's and women's earnings.

The pay gap is much smaller than is often assumed once factors that properly affect pay levels are considered. If hours of work are taken into account, women's earnings rise to 84.3 per cent of men's, a gap of 15.7 per cent.

Education, workforce participation, occupation and industry effects are estimated to explain 50 to 90 per cent of this remaining gap, meaning the size of the unexplained pay gap is between 1.5 and 7.5 per cent.

So most of the wage gap can be explained by factors other than discrimination. The remaining gap cannot be automatically attributed to discrimination as a variety of complex factors determine earnings.

The pay gap is also closing. From 1974 to 2000, women's average hourly earnings increased from about 73 per cent to 85 per cent of men's earnings.

As can be seen from the accompanying table, the gap has reduced for all ages and has almost vanished among younger groupings.

New Zealand has laws about equal pay for men and women doing the same job. But "equal pay for equal work" is over and above simple equal pay.

The Women's Affairs Ministry says "there is no current policy or legislation to ensure that women get equal pay for work of equal value".

Policies to address this "would go beyond equal pay for women and men doing the same job to ensure equal pay for work of equal value".

But how would work in one sector be compared with work in another? How, for example, would an All Black be compared with a Silver Fern?

Comparative worth is one policy designed to achieve equal pay for work of equal value. It aims to address structural discrimination - where jobs dominated by particular groups tend to have lower pay - by comparing the pay of jobs that are judged to be similar and intervening to equalise pay where a difference exists.

Jobs are judged to be similar if they involve the same skills, levels of training, responsibility, effort and working conditions.

Ontario's experience with comparative worth illustrates the difficulties involved in applying pay equity measures in a decentralised labour market. A comprehensive study found the most consistent effects of the comparative worth law on wages in the private sector were negative.

The study concluded that comparable worth would appear to be an unwieldy and complicated regulation for a decentralised labour market. This result is worrying given New Zealand's highly decentralised labour market.

The Government has made a commitment to restore New Zealand to the top half of the OECD income rankings. A critical test of any Government policy proposal should therefore be whether it makes a cost-effective contribution to increasing New Zealand's long-run economic growth.

Clearly, pay equity would fail this test. By introducing further distortions into the labour market and loading more compliance and direct costs on to employers, it could do the opposite.

This would come on top of a series of recent anti-growth policy changes that will make it harder for business to prosper and innovate, including minimum wage increases, the nationalisation of ACC and proposed changes to Occupational Safety and Health laws.

Several policy issues have been overlooked when considering pay equity. A strong economy is essential - economic factors have contributed more to lifting wages over time and closing the pay gap than Government interventions.

The Government should ensure that labour market and social policies are sufficiently flexible to allow different workforce participation and hours of work, and do not hinder women's re-entry to the workforce after time out.

Also, education must be responsive to learner needs to ensure women can obtain appropriate education. These areas are important in helping to continue the improvements in women's pay and ensure the wider impacts are considered.

"Equal pay for equal work" is a policy whose time has passed. It has few upsides and many potential downsides.

A policy package that includes flexible labour markets, sound anti-discrimination laws and well-designed education policies that promote efficient investment in human capital would be a better way of achieving the goals sought through pay equity.

For more information, contact:

Norman LaRocque
Policy Adviser
Ph: 04 499 0790
Email: nlarocque@nzbr.org.nz

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz