The average working-age woman in the UK earned 40% less than her male counterpart in 2019, the Institute for Fiscal Studies has found, with UK policies often entrenching traditional gender roles – and the economy and taxpayers missing out as a consequence, while women take a hit on pension income. 

 

The gender pay gap has reduced by 13 percentage points in 25 years, but the vast majority of this can be explained by the closing of the gender gap in education levels, the authors of the report titled, ‘Women and men at work’ – part of the IFS Deaton Review into inequalities – have found.  

 

"Once we account for education, the reduction for the gender gap becomes very small, about 3 percentage points in a quarter of a century,” said Alison Andrew, a senior research economist at the IFS, speaking at the launch of the report on Monday.  

 

The gap opens up when women have their first child, the report notes, with unpaid work falling disproportionately on women – often incentivised by policies around parental leave, childcare and the tax and benefits system. The report notes that welfare subsidies that are taxed away with family income will disincentivise the work of a second earner, who is usually the woman.  

 

“At the same time, policies designed to incentivise a more equal division of labour often have quite muted effects,” the report states – paternity leave pay is currently not attractive enough for men to lead to significant take-up, for example.  

 

Such huge pay gaps have direct consequences not just for women’s quality of life, but for their retirement prospects, as pensions are intrinsically linked to the labour market. Union Prospect put the gender pensions gap at 37.9% in 2019-20, more than double the official gender pay gap of 15.5% that year. 

Master trust Now Pensions and the Pensions Policy Institute found in 2019 that women’s median pension wealth is about 30% lower than men’s by their late 40s, amounting to about £10,000; this gap grows to over £100,000 by the time people are in their 60s, when the median woman’s pension wealth is £51,100, whilst men’s pension wealth is near £156,500. 

 

The IFS highlighted some recent trends in how inequality is developing. At the same time as women’s education levels have improved, the hourly wage gap has become biggest between educated women and men, upending a longstanding pattern of the biggest gap being found at the other end. The authors attribute much of this to the introduction of the minimum wage, as more women than men were earning below this level. 

 

Women reducing their working hours or taking on a lower-paid job that fits around the family has effects not just on the woman’s wealth but on overall productivity. 

“The economic losses both to the economy more broadly and specifically to the taxpayer from the status quo are really enormous,” said Andrew; every time women drop out of the labour market, this “leads to a loss of tax". 

 

Paradoxically, traditional gender roles after childbirth persist regardless of who is the higher earner in a couple. To explain such behaviour, the authors refer to societal “norms, preferences and beliefs” about gender – highlighting, for example, that 40% of UK adults agree with the statement, ‘A woman should stay at home when she has children under school age’. 

 

Such norms have powerful impacts on the labour market, as the extent of agreement with such statements has a strong positive correlation with gender gaps in labour market outcomes, the authors observe. However, they also stress that such constructs are not immutable; some Nordic countries have increased men’s share in unpaid and care work, for example.  

 

“These things often change when a critical mass of people makes choices outside the existing norm. These dynamics give rise to the idea that ambitious policies have an outsized impact... if they can address both the financial impact and begin to shift norms around the sharing of work,” said Andrew. 

 

Policies aimed purely at bringing women into paid work whilst leaving the unequal distribution of unpaid work unaddressed therefore have little effect on norms and also do nothing to improve the status of unpaid work.  

 

Fran Bennett, an associate fellow at the Department of Social Policy and Intervention at the University of Oxford, said caring – whether it is childcare or caring for an elderly or disabled person – should be seen as “an investment for all, rather than just a private choice”. She said the skills gained from unpaid work are not currently recognised in the labour market. 

 

Bennett pointed out that there are trade-offs for having more women in the labour market, such as more activation of the ‘flexible’ labour market, including self-employment - which is one of the growth areas in the UK labour market and which the pensions sector has so far failed to tackle in earnest.