The pay equity puzzle: can we compare effort, skill and risk between different industries?

Last week’s move by the government to amend pay equity laws, using parliamentary urgency to rush the reforms through, caught opposition parties and New Zealanders off guard.

Protests against the Equal Pay Amendment Bill have continued into this week, driven to some extent by disappointment that an apparent political consensus on the issue has broken down.

In 2017, the National-led government passed a forerunner to the current legislation for the health sector only, the Care and Support Workers (Pay Equity) Settlement Act. Later, in opposition, National also supported the Labour government’s Equal Pay Act in 2018, as well as the Equal Pay Amendment Act in 2020.

That legislation was designed to extend a pay equity process to all occupations and create a clearer pathway for making pay equity claims. With both major parties seemingly aligned, some 33 pay equity claims were under way.

Those claims – all halted now – involve the education, health and social services sectors. As such, the government would have to meet the costs of successful claims.

This explains why one rationale for the law change has been that the claims were potentially too expensive. The other rationale (preferred by Finance Minister Nicola Willis and Workplace Relations Minister Brooke van Velden) is that the existing policy wasn’t sufficiently rigorous in determining the validity of some claims.

In reality, both the cost and the policy framework allowing equity claims to proceed are interrelated: the more permissive the framework, the higher the potential cost to the government and employers.

But while equal pay for equal work is the goal, it’s important to understand that equal pay and pay equity are not the same thing.

Equal pay is about making sure men and women are paid at the same rate in a specific occupation.

Pay equity, on the other hand, involves a more complex process. It aims to establish pay relativities between famale-dominated industries and other sectors using specific criteria. And herein lies the core of the argument.

Comparing different work sectors

According to van Velden, the framework for comparing different kinds of work was too loose, or simply not realistic:

You have librarians who’ve been comparing themselves to transport engineers. We have admin and clerical staff […] comparing themselves to mechanical engineers. We don’t believe we have that setting right.

On the surface, this may seem logical. And previous policy advice provided to the government suggests the recent law change will move New Zealand’s framework into line with other countries.

But using a proxy method of comparison between types of work in different industries or sectors remains central to any pay equity claim.

That’s because pay equity seeks to make visible and fix the deep, structural inequalities that have historically seen women’s work undervalued compared to men’s work. It’s about ensuring jobs that are different but of equal value are paid similarly, as a way to achieve gender equality.

Women’s employment is still concentrated in lower-paying industries and occupations, so comparisons have to be made with other sectors.

The factors used to measure that relativity are known as “comparators”. Rather than using tools developed and tested under the previous legislation, the new system will introduce “a hierarchy of comparators”, with a preference for comparators to be chosen within the same industry or occupation making the pay equity claim.

Comparators are selected to help compare the nature of different kinds of work in male-dominated and female-dominated industries. This is based on an assessment of skills, experience and qualifications, level of responsibilities, types of working conditions and degree of effort.

The assessment is completed through in-depth interviews with workers in comparison occupations. It uses resources such as Employment New Zealand’s skills recognition tool to evaluate the validity of those comparators.

Different kinds of cost

The subjective nature of valuing different kinds of work is part of the problem, of course. But New Zealand research shows only part of the gender pay gap can be attributed to objectively measurable pay differences within specific industries. Pay equity is about addressing both the objective and subjective elements contributing to that gap.

We’ll need to carefully monitor the new system to see whether its narrower comparator requirements affect its capacity to close the gender pay gap.

Treasury’s concerns also need to be considered. The former budget allocation of NZ$17 billion over four years suggests the costs of settling pay equity claims may be considerable.

On the other hand, they may be bearable. Last year in the United Kingdom, for example, Birmingham City Council was effectively bankrupt and feared pay equity claims might be a final straw. In the end, the costs were not as high as initially anticipated.

Finally, focusing exclusively on reducing fiscal cost risks other costs rising instead. Women who are paid less than they should be will struggle to put food on the table, pay back student loans, get onto the property ladder, contribute to Kiwisaver and afford their retirement.

Without pay equity, in other words, there is less economic activity in general.