By Christina Catenacci LL.B.

A recent Statistics Canada report examined the issue of wage gaps between men and women in the labour market. The report’s author found that there has been a decline in the gender pay gap over time. The purpose of the report was to explore the factors contributing to the decline. Essentially, there were three major findings: first, the growth in women’s relative wages outpaced that of men, suggesting a changing composition and compensation of the labour force; second, men and women entering today’s labour market are more alike in terms of characteristics and wages than they were in the past, suggesting there could be a cohort-replacement effect; and third, part of the decrease in the gender wage gap might be related to the fact that men’s and women’s wages did not diverge as they aged to the same extent as in the past.

Between 1988 and 2008, the wage gap narrowed throughout the wage distribution. However, the gap shrank the most at the lowest end of the wage distribution, and the gap shrank the least at the upper end.

Most female-dominated occupations such as the health and education occupations had relatively small wage gaps in 1988 and experienced little change over the period, with the exception of clerical occupations, where the wage gap decreased by half by 2008.

Interestingly, although women dramatically increased their representation in high-wage occupations such as management, there were still significant gender wage gaps within these occupations. However, this finding makes sense since female workers must first show increased representation in lower-level positions within the occupations before transitioning into management.

Unfortunately, the wage gap among university graduates remained at 16 percent over the 1998 to 2008 period, likely because there were still persistent differences in the fields of study chosen by men and women. More specifically, women continued to outnumber men in education and the humanities, while men outnumbered women in mathematics and engineering.

On the other hand, the wage gap narrowed the most substantially among older workers.

The report highlighted the following findings that could explain the declining wage gap:

The examination should not study full-year, full-time employees; one has to consider both pay and a precise unit of work, or hourly wages. On an hourly wage basis, the gap in pay between full-time women and men decreased from the early 1990s to the late 2000s.

The educational attainment of women increased and eventually surpassed that of men. The proportion of women age 25 to 54 in the labour force that held a university degree rose from 15.7 percent in 1990 to 29.3 percent in 2008 compared to 17.7 percent and 25.3 percent for men. What’s more, in 2008, 62 percent of undergraduate degrees and 54 percent of graduate degrees were granted to women.

The Canadian economy experienced structural changes such as the shift away from manufacturing jobs. This had a disproportionately larger impact on the unionization rates of men, to the point where the unionization gap disappeared.

On average, women’s real wages (wages adjusted for inflation) increased by 11.6 percent between 1988 and 2008, with the most significant increases occurring in the group of women aged 45 to 49 (17.8 percent) and those at the higher end of the wage distribution (16 percent). In contrast, men’s real wages increased only by 1.3 percent between 1988 and 2008, albeit with different results depending on factors such as age and wage groups. More specifically, men aged 35 and over and men at the lower end of the wage distribution saw their real wages decline between 1988 and 2008.

For older workers, longer job tenure and shifts in occupation reduced the gap. Since older men were much less likely to hold management jobs in 2008 (about 14 percent) than their 1988 counterparts (about 20 percent), and since managers generally earned higher wages, there was a significant decline in the gender pay gap. Changes in job tenure (holding long-term jobs) accounted for another major decline in the wage gap, given that more women began holding these kinds of jobs.

Higher education and declining unionization narrowed gap for younger workers. That is, higher educational attainment and changing choices of occupation increased the real wages of younger women. For instance, by 2008, 24.1 percent of younger men and 36.5 percent of younger women held a university degree. Since education was positively correlated with wages, the increasing educational attainment of younger women accounted for a significant narrowing of the gender wage gap. Likewise, younger women also moved away from low-paying occupations such as clerical and sales positions, and towards higher paying occupations including health and education; this also narrowed the wage gap.

Contrastingly, there were significant drops in unionization rates for men due to the structural changes in the economy. Younger men experienced a drop in union coverage of 11.3 percentage points. Since non-unionized workers earned less than unionized workers, more men began earning less and the wage gap decreased significantly as a result. Further, changes in the pay structure within some industries also contributed to the narrowing gap. For example, men traditionally held most high-paying manufacturing jobs in fields like auto assembly and metal fabricating, while women held jobs in lower-paying sectors like textiles and clothing. However, this changed by 2008, contributing to the decreased wage gap.

The correlation between the wage gap and age has always been present. However, this correlation has weakened with each successive year. Most strikingly, the gender wage gap was 20.1 percentage points smaller among workers aged 25 to 29 than among workers aged 50 to 54 in 1988. By 2008, the difference in the gap between younger and older workers shrank to 9.4 percentage points. This finding suggested that there was a “cohort replacement effect”; that is, as younger cohorts replaced older ones, the overall gap declined simply because the gap was smaller in new cohorts than in those that preceded them.

The wages of men and women in age cohorts stopped diverging as they aged for two reasons involving career paths. First, as women’s children age, they may be able to devote more time and energy to the paid labour market by accepting promotions or acquiring training; this caused the wage gap within a given cohort to narrow or remain stagnant since women’s enhanced work effort improved their relative earnings capacity. Second, female workers have traditionally been viewed as more likely to quit and be absent from work; these predetermined notions of job performance may influence pay as well as job placement. However, since it has been determined with evidence that there is little gender difference in permanent quit rates and absenteeism, the wage gap within a given cohort may have narrowed or remained stagnant since quits and absenteeism could no longer be viewed as important explanations for women’s lower wages.

The correlation between the wage gap and age was overstated in cross-sectional tabulations. For example, once selection bias was taken into account, the adjusted wage gap decreased more than expected or reported.

The report concludes that these findings provide insight into the functioning of the Canadian labour market. For instance, the gender wage gap early in an individual’s career could be viewed as an increasingly good predictor of the wage gap throughout a generation’s working life. Moreover, further declines in the gender pay gap may be difficult to determine since, after the 1988 cohort, there are only moderate declines in the wage gap for younger women from cohort to cohort. This is a sign that things are changing—especially with the younger generations.

View the report here.

Christina Catenacci LL.B., Editor, HRinfodesk.com—Canadian Payroll and Employment Law News, January 2011

Originally published in HRinfodesk–Canadian Payroll and Employment Law News and Developments January 2011. Visit hrinfodesk.com for more information.