The Causes of Income Inequality

Between Genders in Australia

Matthew Brodie

SID#: 307215679

INTRODUCTION

The gap between female and male earnings in Australia has dominated both

popular and academic debates from the 1970’s onwards. Despite the

implementation of equal pay legislation and an initial improvement in

women’s pay outcomes during the 1970’s and 1980’s, the persistent gap has

been met with disgust by the popular media (Needham, 2009; Galacho,

2009). In order to better understand the factors causing the Australian

gender-wage-ratio (GWR), which currently sits at 79.7% (ABS, 2009),

scholars have applied two divergent theoretical approaches. The first is an

approach derived from the work of Ronald Oaxaca (1973) and Alan Blinder

(1973), whose methods utilise quantitative data and regress them against

factors believed to influence the GWR. In a labour market that legislates for

‘equal pay for equal work,’ principles of merit and marginal returns to labour

productivity ought to account for the female wage gap. It follows that the

unexplained residual in this model represents discrimination by employers

which cannot be captured via statistical analysis (Wooden, 1999; Brown &

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Ridge, 2002; Pocock & Alexander, 1999; Kidd & Meng, 1997; Le & Miller,

2001). The second theoretical approach rejects the reduction of

“discrimination to an amorphous status” (Figart, 1997, p. 3), and views

societal components central to wage outcomes such as educational

institutions, industrial relations systems and the family unit as possessing

inherently patriarchal values and processes (Figart, 1997; Bergmann, 1987).

This paper will follow the theoretical methodology developed by Oaxaca

(1973) and Blinder (1973), and will explain the impact various contributory

factors have on the persistent Australian GWR differential. As in the work of

Petcock and Alexander (1999), the factors will be divided into categories of

human capital attributes (education), demographic factors (age, sex, town

size) and job characteristics (full time employment); all of which are

regressed against individual income. The following sections will specify the

methods used to collect and process the data and then interpret the results

in respect to the GWR differential. Also, a discussion of the findings will draw

linkages between the factors and the wage gap in light of other research into

the subject area and lastly, the paper will conclude by suggesting avenues

for further research and some implications for policy reform.

METHODS

Individuals between the ages of 25-59 years who are unmarried and not

living with their parents or in an institution are the focus of this study. This

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delivers a sample that posits the individual as the main source of income,

not a spouse, relative or institution. A national probability sample of

Australian households was derived by using multistage cluster sampling. It

drew from a sampling frame of 30 ABS census districts chosen using

probability proportionate to size. This maximised the geographic size of the

area covered and ensured a variety of socio-economic and ethnic groups

were covered to reduce the possibility of bias affecting the results. Within

each district 50 households were chosen at random and face-to-face surveys

were conducted over the period from April 1st – July 31st, 1994. Each

household was visited a maximum of twelve times before attempts to reach

the respondent(s) were abandoned, delivering an achieved sample size of

2048 respondents from 1202 households, of which 345 were suitable

subjects.

Data that was gathered for the survey included demographic information on

sex, age (denominated in years) and the individuals’ town size as measured

by population (in order to gauge the effect urbanised industry has on

income). The human capital component was measured by the level of formal

education attained by the subject, ranging from “no formal education” to

“university-level education, with degree.” Data pertaining to a respondents’

employment status was operationalised as either employed on a full time

basis (works 30 or more hours a week) or not (casual, part time,

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unemployed, etc.). This measure is fairly ambiguous as it does not allow for a

comparison of equal pay for equal work across full time and part time jobs. A

more complete data set would measure income by the hour. It does

however, allow for the model to control for part time work, which is a

characteristic of women’s employment (Todd & Eveline, 2007). Lastly,

income was measured on a scale of 1-10, with each integer corresponding to

an income band. Of the 345 eligible individuals’ 305 could provide data for

the six variables, delivering a total sample size of N=305.

RESULTS

Table 1 describes the results of three separate multiple linear regression

models that were processed using the data from the abovementioned survey

and have income as the dependent variable. Model 1 displays the

coefficients associated with a regression of an individuals’ sex and the effect

it has on their income. Model 2 carries this analysis further by controlling for

the additional independent variables of age and educational level attained.

Table 1. Regression models for individual income (n=305)
The most complete model is Model 3, which controls for employment status
Model 1 Model 2 Model 3
and town size in addition to sex, age
[contant] and
61020 ***educational attainment.
45521 *** 18020 ***
Sex - Female -13855 *** -13798 *** -6686 *
Age - Years 501 ** 302 *
Education Level 6022 *** 5991 ***
Employment - FT 26266 ***
Town Size 1499 *

R-Squared 0.049 0.233 0.351

* Significant at p < .05

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** Significant at p < .01
*** Significant at p < .001
Model 1’s result does not possess any explanatory power as determined by

the low R-Squared score (R²<0.1) rendering it invalid. Contrastingly, Model 2

displays relatively higher explanatory power (R²=0.233) and describes a

substantial negative correlation between gender and income, and a positive

relationship between education, age and income. All variables are

statistically significant based upon their p-values; however, it can be argued

that age is relatively unimportant due to the small size of its coefficient. The

positive correlation of the education coefficient was expected and confirms a

vast array of literature that establishes a causal link between education and

income (McMahon, 1999). Model 3 possesses the highest explanatory power

after controlling for full time employment and town size. All the independent

variables are statistically significant; however, age’s effect on income

remains negligible. The contrasting degree to which gender has an effect on

income between Model 2 and Model 3 once employment type and town size

is controlled for is particularly noteworthy. The large and statistically

significant positive coefficient for employment backs up the existing

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statistical evidence that finds full time workers earn more (ABS, 2009), and it

is this independent variable that holds the greatest influence over an

individuals’ income. However, there is still a considerable disadvantage

experienced by women that are not explained by the independent variables.

The large and expected residuals in all models are in line with similar

research (Brown & Ridge, 2002; Blinder, 1973), and is attributed to

unquantifiable workplace discrimination and other factors outside the scope

of this study.

DISCUSSION

Models 2 and 3 both demonstrate a high level of correlation, and it is

reasonable to assume all independent variables hold precedence over

income. Also, non-spuriousness can be assumed as there is no plausible

factor that could possibly explain the expected variance in the model. Thus

causality between the independent and dependent variables is proven, and

the results derived from the data reinforce much of the existing work

discussed earlier that list demographic factors, educational attainment, job

characteristics and a residual error attributed to discrimination as variables

that impact upon an individuals’ income (Le & Miller, 2001; Wooden, 1999;

Pocock & Alexander, 1999). By contrasting Model 2 and 3, two important

points can be extrapolated from the results. Firstly, although high

educational attainment will tend to unambiguously raise an individuals’

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income, it still does not account for the gap that persists in the GWR. Kidd

and Meng (1997) recognise this fact and conclude that a small improvement

in the GWR throughout the 1980’s could be attributed to equalising

educational outcomes between the sexes, however, this improvement was

not large enough to considerably close the GWR (p. 41). Secondly, the large

drop in the value of the sex coefficient after the introduction of the

employment variable indicates that a statistically significant factor in

explaining the GWR is the part time nature of women’s work. Again this

finding is in line with the vast majority of existing research that cites broken

career paths due to child rearing and casualisation of female workers in

response to familial care responsibilities as reasons for this trend (Preston &

Jefferson, 2007). It is difficult to extrapolate any additional linkages between

the results of the research and the GWR due mainly to limitations with data

collection. Information relating to inter-industry and intra-industry gender

segregation, a comparison between hours worked in the model and a range

of other relevant variables would provide for a more in-depth analysis of the

contributory factors in line with contemporary studies.

CONCLUSION

The findings of this research paper attribute the divergent nature of the

Australian GWR to the over representation of women in part time work and a

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large regression residual that encompasses an unmeasured level of

workplace discrimination. The implications that this has for Australian society

in general are two-fold. Firstly, future research should be aimed at

developing a new theoretical approach that concisely accounts for the

chronic unexplained residual found in multiple regression models. The

theories of Figart (1997), Bergmann (1987) and Short and Nowak (2009) go

some way in dealing with this issue by combining both qualitative and

quantitative research methods to provide a more complete picture of the

causes behind gender-specific pay outcomes. Secondly, future policy

developments should be aimed at reducing the structural differences

between male and female work. Perhaps a more progressive approach to

child care and paternity leave, such as that adopted in Sweden, would go

some way in closing the GWR (OECD, 2007). Ultimately, the gap in the GWR

will most likely only close when Australian society undergoes a shift in the

attitudes and values that surround gender equity in the workplace.

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