One of the key reasons that we decided to run the Positive Economics webinar series (with exports, housing and Brexit so far) is that it’s such a dynamic subject, it can be difficult for students and teachers to keep up with all that’s changing in the world. Therefore, as a practising economist, I can help them out.
If there was ever a period in history where that was the case, it would have been this past month. There have been unthinkable changes to the Irish and global economies made within hours. Naturally, the first topic of discussion this evening then, was why COVID 19 was making such a big impact on the economy, how the government was responding and how this period in our economic story could shape the future.
Next, given that it was the month of International Women’s Day, I took our group through what the Gender Pay Gap really is, how it’s measured, what trends may affect it in the future and proactive strategies that have worked to date. It’s a topic that I’ve been often asked to discuss and most recently, at a seminar at a university in Cambridge. Finally, given that students will soon have to put together a Research Report as part of the Leaving Cert curriculum, I gave a short introduction to primary research and specifically the difference between qualitative and quantitative analysis.
Here is the full recording and the summary article with supplementary resources follows below:
Why has COVID 19 had such a huge impact in such a short period of time in the economy?
The velocity of money has completely slowed down. Let me explain that concept. Imagine that I’m in Galway and I’m going to say in a hotel as I have a business meeting in the morning. I walk into the hotel and tell the receptionist that I would like to stay that night, but I would like to see the room first. He said, “that’s ok, but I need a €50 deposit first”. I hand over a €50 note and go up to the room. While I’m gone, he runs across to the butcher and says here is the money I owe you for the recent meat order that we gave you. The butcher then goes to the fruit and vegetable shop. She says to the owner “here is the €50 I need to pay you for the ingredients we use for marinades”. The fruit and veg owner then goes to the local restaurant and says “I want to bring my staff out for lunch and here is €50 for the meal that we will have tomorrow”. The restaurant owner walks over to the hotel and says “I want to book my sister in to stay at the weekend. Here is €50 to cover her room”. At that stage, I walk out of the lift and tell the receptionist that I’ve just had an urgent call to go back to Dublin as a client from the UK wants to meet in the morning. He hands me back my €50 and off I go. Even though I got my money back, four other people got paid. An economy isn’t built on how much money people have, but on how fast it moves. That’s the velocity of money. (If you want to read more about the subject, check out my other post on why it makes a lot of economic sense to shop local.
COVID 19 has dramatically slowed down how fast money can move. This has happened for two reasons. In many cases, businesses have been shut down and so one can’t spend their money getting their hair done, going out for a coffee or eating out. The other reason is that with such a high level of unexpected unemployment, people have less money to spend or else they’re worried about having less money if they lose part of their income.
“The government has stepped in with a big fiscal package. Three numbers summarise it. €3.7 billion over 12 weeks with the possibility of affecting 800,000 people directly”.
The government has analysed how we earn our money and spend our money. From a spending point of view, it took action on the biggest concern that people have when they find themselves in financial difficulty and so discussed a three-month mortgage payment break with the banks. It has closed childcare facilities (to prevent the spread of the virus) and hence, parents may not be expected to pay for their children to attend such facilities. (The entire industry would then collapse as its demand was eliminated overnight. That’s why the government has negotiated a separate deal with businesses in this area.) Finally, as I mentioned above, lots of other businesses have been temporarily closed to “flatten the curve” and hence, people can’t spend their money in ways they could before on entertainment.
Also, fiscal policy has supplied new social welfare payments for workers who have found themselves unexpectedly unemployed. Further, businesses that are “vulnerable and viable” (i.e. those companies who have seen sales fall by 25%) can apply for help to pay wages of staff so that they can keep employing people while keeping their business going. Also, the government is now trying to recruit many more people in the health service to be able to handle the impact of the virus pandemic as best it can.
Of course, there are many questions after that. What will happen after 12 weeks? What will life be like in the coming months when we’re dealing with a health crisis, an economic crisis and a social crisis all at the one time? Further, lots and lots of people are now working remotely. This is a BIG change to a lot of people who may have spent their entire careers commuting to an office every day. Could this “experiment” of thousands of people working in their kitchens lead to a more permanent change? Could this very month have a big impact on the future of the world of work? What will our new normal be and how can we shape it? We will have a lot of questions to consider in the coming weeks, months and years.
What is the gender pay gap and how is it measured?
The gender pay gap compares the average rate of pay that men and women receive. However, there are different ways of measuring, what is perceived as a simple calculation. First, let’s examine who brings the most money to the world. While we know that, broadly speaking, the population is split 50/50 between men and women, there is a big difference between who generates the money underpinning the global economy. Women are responsible for 37% of the worlds GDP while men create the rest.
However, let me give you an alternative way of looking at this. The way in which we measure GDP or National Income is C + I +G + NX i.e. consumption + investment + government expenditure + net exports. In other words, what we spend our money on, how much we save and what we pay in tax. Are we missing anything? Let’s have another story!
“Mary pays Pat €10 to cut the grass. The €10 is added to the country’s GDP. Mary marries Pat and he cuts the grass. (Mary doesn’t pay him to do this!). Nothing is added to GDP… but the grass is still cut”.
What about the work that is unpaid? That work is still done, but it’s not counted in GDP. However, if we did count it, then two figures jump out at us. The first is that it would represent 13% of GDP and the second is that women do 75% of the unpaid work in the world, according to a document published by the United Nations. Therefore, is it really the case that women are responsible for only 37% of the world’s GDP, or is that GDP doesn’t encapsulate all of the work done in the world? If GDP did include “H”, for “Home”, then the two graphs in the previous picture would be much more balanced.
What is the difference between what men and women earn?
In the European Union, women, on average, earn 16% less than men. That means that for every €100 that a man makes in the EU, a woman in 2019 made €84. European Equality Pay Day highlights another way to understand this. If a man is to be paid for doing a full year’s work, a woman is paid until the equivalent of European Equal Pay Day. In 2019, this was 4th November. However, again, this isn’t quite the full story.
When do women start earning a lower amount than men?
There isn’t a gender pay gap when graduates start working. There isn’t even a gender pay for quite some time afterwards. However, we can identify the key moment that it happens. It’s when parents bring a bundle of joy into the world. In general, women are the ones who leave the workforce to take care of a child during parental leave and sometimes longer. Of course, if they have more than one child, then this period outside the workforce is repeated or extended. There are three key reasons that this affects their earning potential:
- While others remain in the workforce, they may get promoted and hence earn more money.
- While they take time out of the workforce, beyond paid parental leave, then they may have to take a significant drop income.
- As they return to work after being out of the workforce, they may need to retrain or start at a lower level in their career to build back up again.
Here is some research from the Economist about what happens to earnings after men and women have children.
What are the follow-on impacts of this and what can be done about it?
- In many cases, women want to stay at home with their children and enjoy the magic of seeing them grow up. Some don’t want the responsibility (and hence give up the reward) of a high-flying job because parenting is their job and their priority. That’s perfectly reasonable.
“Back to my earlier point, just because we don’t count this in our GDP doesn’t mean it doesn’t count”.
- It’s a well-known issue in the employment world that women don’t ask for as high a salary as a man doing the same job. The same thing happens when it comes to women who are self-employed. They typically don’t ask for as high a price as a man offering the same goods or services. This is where the gender pay gap is created.
Recruitment company salary guides can be very helpful when it comes to answering the question “what are your salary expectations?” in an interview.
- As some women leave the workplace, it can look very different when they return. Today, there is more focus on social media, data analytics, entrepreneurial thinking, cloud collaboration, artificial intelligence and machine learning than a decade ago. While there is a variety of views about the Future of Work is going to contain, there is one thing that everybody agrees on and that is that it will look different from today. As referred to earlier, the remote working that social distancing has imposed upon us could play a much bigger role than we anticipated even a month ago.
As a result, when people return to the workplace, they need to be brought up to speed with an understanding of where they’re coming from and where they want to get to. Merrill Lynch runs a “Returning Talent” programme. Vodafone organises a “Reconnect” initiative. The Springboard courses offer a very cost-effective way to upskill in a niche area of employment while developing your Job Readiness at the same time. There is a range of them on offer and I’ve lectured on every cohort of the “Global Capital Markets” one for Ulster University and Irish Times Training.
What trends are happening that may organically narrow the Gender Pay Gap?
There are some very interesting changes happening in our society that will have an impact on how men and women are treated in the workplace.
For example, Generation Z (i.e. those born between 1995 and 2010), actively want retailers and service suppliers to be “gender blind”. Specifically, in a study published by McKinley.
“48 per cent of Gen Zers—but only 38 per cent of consumers in other generations—said they value brands that don’t classify items as male or female”.
The same organisation suggests that women are less likely to lose their jobs to automation due to the need for emotional intelligence in many of the professions and jobs they personally chose.
Also, many men who are parent are now seeking to make the workplace more accessible for them too in relation to spending more time with their children or for more flexibility be given to those who want to take a more active role in parenting. Specifically, in the “Fathers and the Workplace Inquiry” from the UK Parliament, research shows that “many fathers do not feel supported in the workplace to care for their children”. As more men seek greater balance for time with their children throughout their lives, we will see the gender pay gap diminish.
Finally, a trend that is gathering momentum is that social expectation now of companies to publish their own figures. For example, PwC Ireland announced in February 2020 that their Gender Pay Gap had decreased by 1% so that there is now 4.7% of a difference between what men and women get paid on average and outlined the actions they want to take to bring this number lower and lower.
Qualitative vs Quantitative Primary Research
I had a call this morning with a person who is researching for her Masters in Organisational Psychology. She wanted to interview me about what it’s like to be a female entrepreneur, how I manage work/life balance and how my relationship with the business has changed over (almost!) a decade. The questions she was asking led to me to answer with stories, thoughts opinions and feelings. This is the nature of qualitative research. It was primary research because she was asking me these questions directly (rather than the secondary research I discussed during last month’s webinar on Exports).
In contrast, quantitative research is when you ask questions and expect numbers in response. By investigating how a business might have increased its exports to the US after Brexit or analysing how much people expect rent to rise or fall due to a change in economic growth, you’re conducting primary quantitative research in this case.
Next month’s webinar
It was a great pleasure to speak to well over a hundred people tonight online and I’m already excited about talking to even more of you next month. On Thursday 16th April at 7 p.m., I will take you through a further update on the impact of Covid 19 on our economy, a whistlestop tour of entrepreneurship and the Enterprise factor of production in Ireland as well as further insights into primary research.
Source: The Positive Economist