The Pros and Cons of
	Implementing Equal Pay for Equal Value in Hong Kong*

	Yun-Wing Sung
	Department of Economics
	Chinese University of Hong Kong
	Shatin, Hong Kong

	Email: ywsung@cuhk.edu.hk

Revised: 18 April, 2000

Paper prepared for Conference on Equal Pay for Work of Equal Value organized by the Equal Opportunities Commission in Hong Kong Convention and Exhibition Centre, Hong Kong, 18 March, 2000.

* The results of this paper are taken from “Feasibility Study of Equal Pay for Work of Equal Value” commissioned by the Equal Opportunity Commission of Hong Kong. The investigators included Professors Sung Yun-Wing, Zhang Junsen, Ng Sek-Hong, and Paul Hempel. The errors are solely mine.

The Pros and Cons of Implementing Equal Pay for Equal Value in Hong Kong
	Equal Pay for Equal value, or equal value, is designed mainly to combat sex discrimination caused by job segregation. Very often, women and men tend to be segregated into different jobs. Frequently, the jobs done mainly by men (male jobs) have a higher status and are more highly rewarded than those done by women (female jobs).

	The proponents of equal value argue that jobs of equal “value” warrants equal pay. The “value” of a job (male job or female job) can be determined by “job evaluations” that quantify attributes (compensable factors) of a job such as skill and effort requirements, responsibility and working condition.

	This paper studies the pros and cons of implementing equal value in Hong Kong. The paper is organized as follows. First, we analyse the size and trend of the gender wage gap in Hong Kong. If the gap is small and decreasing, there is probably not much to be worried about. If the gap is large and increasing, government intervention may be necessary. 

	Second, we break down the gender wage gap into two components, a component caused by personal characteristics affecting productivity (such as education and experience), and an unexplained component which may be due to employer’s discrimination. The two components call for different types of policy interventions. Gender differences in personal characteristics affecting productivity (e.g. women may receive less education) are largely the result of discriminatory socialization. Discriminatory socialization, which is the result of history and culture, should be changed through education. Employer’s discrimination should be tackled through equal opportunity legislation.

	Third, we analyse the effect of occupational segregation on the gender wage gap. If the gender wage gap is largely due to occupational segregation, then equal value may bring substantial benefits.

	Fourth, we analyse the costs of implementing equal value in Hong Kong. We look at the cost of mandating job evaluations, the impacts on competitiveness, and also possible adverse impacts on unemployment. Section five concludes.

1.	Size and trend of gender wage gap in Hong Kong

	In Table 1 the female-male non-agricultural wage ratios of Hong Kong are compared with those of USA, Canada, UK, Australia, Japan, Singapore, Norway, and Sweden. We have chosen developed countries for comparison because Hong Kong’s per capita GDP is on a par with developed economies, and labour market gender gaps usually shrink as the economy develops. The Scandinavian countries are chosen because they are known for their egalitarianism. Such a comparison will provide us the macro picture of where Hong Kong stands internationally.

	In both 1985 and 1990, the gender wage gaps of Hong Kong are smaller than all the selected countries excepting Australia. Hong Kong’s gender wage ratio improved sharply from 0.76 in 1990 to 0.85 in 1996, and Hong Kong’s gender wage gap is smallest among all selected economies in 1996. Though UK, Australia, the USA, and the Scandinavian countries have been enforcing equal value laws since the 1970s, their gender wage gaps are still much larger than that of Hong Kong. This suggests that other factors may be much more important in determining the gender wage gap than equal value laws. Hong Kong’s gender wage ratio continued to improve to 0.89 in 1998, which is very low by international standards.

	The rapid narrowing of the gender earnings differential is partly due to the rapid rise of female educational attainment: from lower than that of males in 1981 and 1986 to higher than that of males in 1991 and 1996. The structural transformation of the Hong Kong economy from manufacturing to services since the 1980s also helped as females shifted from manufacturing workers to clerks who are better paid. 

	In Hong Kong, manufacturing had been a very important source of employment for females. Leading manufacturing industries in Hong Kong such as clothing, textiles, and electronics preferred female operatives because of their dexterity. In 1981, manufacturing accounted for 55% of female employment but only 34.7% of male employment. In 1981, 45.7% of manufacturing employment was female, which was significantly higher than the economy-wide average of 35.5%.

	By 1996, manufacturing only accounted for 11.8% and 9.7% respectively of female and male employment. From 1981 to 1996, the share of manufacturing in female employment has dropped by 43.2 percentage points while the share of manufacturing in male employment has dropped by only 25 percentage points. For females, the shift out of manufacturing into services has been proportionately much larger than that of males. The shift of female employment from manufacturing to services has contributed to a narrowing gender gap in the economy because services tend to pay higher wages than labour intensive manufacturing.

2.	The gender gap and employer’s discrimination

	We use data from the 1981, 1986, 1991, and 1996 population censuses to analyse the gender earnings differential (the percentage by which male earnings exceeds female’s) in Hong Kong. 	We concentrate on the sample which excludes foreigners as the large number of foreign domestic helpers tend to bias our results. The gender earnings differential (in monthly wages) in Hong Kong has declined rapidly from 35% in 1981 to 17% in 1996. This is consistent with the rapid decline of the gender wage gap mentioned in the above section.  	We use the Blinder-Oaxaca method to decompose the gender earnings differential into a component explained by personal characteristics (such as education and experience), and an unexplained component which may be due to discrimination. The unexplained differential fell from 26% in 1981 to 17% in 1996, indicating that discrimination may have decreased. 

	It must be stressed that the unexplained part of the gender gap may be due to factors other than discrimination. Part of the unexplained gap may be due to variables that are not included in the model. If such variables affect earnings, they can account for a significant part of the unexplained gap. For instance, it is likely that men work longer hours than women. However, working hours are not in our model because such data are not available for 1991 and 1996, though they are available for 1981 and 1986. Indeed, we will show below that, in 1981 and 1986, working hours account for at least 35% of the gender gap in monthly wages.

	Intensity of effort is a very important variable explaining earnings, but this variable is absent from almost all data sets because it is very difficult to observe and measure. Becker (1985) argues that married women do most of the household chores and thus have less energy available for the market than do most husbands. When women spend less energy per hour of work, they earn less. Moreover, their household responsibilities induce occupational segregation because married women seek occupations and jobs that are less effort intensive and otherwise are more compatible with the demands of their home responsibilities. If Becker’s argument is correct, then intensity of work effort may account for a significant part of the unexplained gap. 

	The fact that men work long hours than women and married women rather than men do most of the household chores may be a result of discriminatory socialization. However, it is not discriminatory for employers to pay less for less intensive job efforts. We should distinguish between labour market discrimination which is the responsibility of employers, and discriminatory socialization which is attributable to history and culture. Cultural attitudes should be changed through education. Requiring employers to pay the same wage to less intensive work efforts is certainly not a solution.

	It should be noted that labour market discrimination is not unrelated to discriminatory socialization. In fact, sufficiently strong labour market discrimination would tend to reinforce discriminatory socialization. If a large number of employers discriminate against women by paying less even when they are as competent and hard working as men, then it would be rational for women as individuals to work less hard and invest less in training and education because women have less to gain than man from work and education. Over time, such employer discrimination would reinforce cultural stereotypes.

	Even though labour market discrimination and discriminatory socialization are intertwined, it is important to keep the two conceptually distinct as the policy remedies for the two are different. In principle, our regressions can separate the effects of labour market discrimination and discriminatory socialization. Given enough data, our regressions can answer the question: Are women paid less even if they are equal to men in every way (in training, education, experience, hours worked, and intensity of effort etc.)? If so, then that gap is due to labour market discrimination. Of course, even in the absence of labour market discrimination, women may get less pay because they have less education, training, and so on, and this part of the gap may be attributable to discriminatory socialization.

	Unfortunately, we do not have data on every important variable. In particular, we left out hours worked and intensity of work effort, which may account for half or more of the unexplained part of the gender wage gap. The unexplained part of the gender wage gap obtained from our regressions should thus be taken as an upper bound on the effect of labour market discrimination.
3.	The gender gap and occupational segregation

	If the gender wage gap is largely due to occupational segregation, then equal value may bring substantial benefits. However, the Brown et. al. decomposition, which takes into account occupational differences, shows that the gender earnings differential in Hong Kong is overwhlemingly within occupations. Moreover, the gender pay differential due to occupational differences favours females (other things being equal, the pay of females is 2.9% higher than males as a result of occupational differences). This is because clerks (female jobs) are generally better paid than crafts, operators or labourers (male jobs). The within-occupation unexplained differential, which may be due to employers’ discrimination, declined from 28% in 1981 to 16% in 1996.

	The analysis of occupational effect on pay is done at a high level of aggregation (1 digit occupation) due to the limitations of our model. Our study is not able to uncover occupational segregation at a fine level. For instance, it has been pointed out that the majority of school teachers are female while the majority of principals are male. In our study, both teachers and principals are in the same occupation (professionals) and their pay differential appear as within-occupation differential rather than a differential between occupations. Even if we had been able to conduct our study at a fine level of disaggregation, the effect of occupational segregation on pay could not be large because our study indicates that the within-occupation unexplained differential has declined rapidly and its size is not large.

4. The costs of implementing equal value

	Implementing equal value in Hong Kong is likely to be costly. Job evaluation, the instrument of implementing equal value, is not designed for small firms. Given the predominance of small firms in Hong Kong, few Hong Kong firms have clearly defined jobs and very few can afford a job evaluation. In the four industries for which data on firm size are available (they cover 70% of Hong Kong’s labour force), firms employing 200 persons or over only account for 0.2% of the number of firms and 22.9% of total employment.

	Moreover, the small open economy of Hong Kong is subject to tremendous competitive pressure. We expect that even relatively small equal-value wage increases will have relatively severe impacts on competitiveness, leading to relatively large fall in employment. This view is shared by the majority of trade union centres and small and medium sized firms that we have interviewed.

	Despite the appearance of scientific rationality, job evaluation is inherently subjective as the choice of factors and weights and the assignment of scores involve subjective judgement. Moreover, job evaluations often reward dishonest job descriptions and encourage point-grabbing behaviour (Lawler 1986) because the best way for employees getting a higher rating for their job is to belittle the importance of other jobs. From our interviews of small firms and trade unions, the majority of interviewees were afraid that job evaluations would be subjective, breeding jealousy and contention among employees. Moreover, mandatory equal value laws were regarded as alien to Hong Kong’s Chinese workplace culture, which value reciprocity, trust, and forbearance rather than confrontation and litigation.

4.	Conclusion

	Despite the widespread use of job evaluations in equal value situations, it has been shown that even an ideal job evaluation will not be able to determine the right payments for jobs if employees’ preferences are heterogeneous, which is the usual situation (Killingsworth, 1987). Equal value policies will thus create all sorts of inefficiencies in the economy. 

	Even if we make the unrealistic assumption that employees’ tastes are homogeneous and we have an ideal job evaluation that can uncover the right wage differentials, equal value is most often a wrong remedy for discrimination. Equal value addresses the symptom instead of the cause of low female wages, which may be employer discrimination, discriminatory socialization, lack of training or lack of child care facilities etc. Employer discrimination should be tackled by equal employment opportunity policies (which prohibits discrimination in hiring and promotion but does not require equal value); discriminatory socialization should be changed through education; and lack of training and child or elderly care facilities should be made good by their provision. By alleviating the symptom of low female wages, equal value often makes the solution of the problem more difficult. For instance, if the cause of low female wage is lack of skills, equal value discourages females to invest in skills for the high-pay jobs by inflating the wages of low-pay jobs. Moreover, the artificially high wage will give the wrong incentive for more people to enter the female jobs.

	Equal value is also dubious on equity grounds. By inflating the wages of female jobs, some women will lose their jobs. The unemployed women bear the cost of the wage increase for those who are lucky enough to remain employed. 

	Recent trends in pay system design are moving away from compensation based upon narrowly defined jobs to compensation based upon individual characteristics. Equal value requires stable jobs and stable organizational structures which are no longer common. This reservation against equal value is shared by the majority of union centres interviewed. In the two leading corporations that we have interviewed, performance appraisal has become more important than job evaluation in determining pay. In the two small and medium-sized firms interviewed, clearly defined jobs do not exist. The implementation of equal value and job evaluation in such an environment is clearly very difficult, if not impossible.

	Even if clearly defined jobs exist, job evaluation is inherently subjective. Different experts evaluating the same job often give substantially different scores. Job evaluations often generate bitter debates and point grabbing behaviour among employees. In Hong Kong, these reservations against job evaluations are shared by the majority of trade union centres interviewed.

	Hong Kong has a significantly smaller gender wage gap than the advanced economies that have practised equal value for decades. In Hong Kong, both the gender earnings gap and the unexplained component which may be due to discrimination have declined very rapidly. Equal value is supposed to deal with job segregation, but Hong Kong’s job segregation favours females. The costs of implementing equal value in Hong Kong is likely to be high due to the predominance of small firms. Moreover, being an open economy, Hong Kong is vulnerable to international competitive pressure. Equal value is also regarded by our Chinese interviewees as culturally alien. The need for equal value in Hong Kong is not evident. 

	While mandatory equal value is not a burning issue, complacency on gender equality is not warranted. Though Hong Kong’s gender wage ratio had improved sharply from 0.76 in 1990 to 0.89 in 1998, future improvements will likely be slow. The two main factors which helped to shrink the gender wage ratio, namely the rapid rise in female educational attainment and the structural transformation of the Hong Kong economy from manufacturing to services, will not work as effectively in the future.  The structural transformation of the Hong Kong economy is near completion and the size of the manufacturing sector is quite small. The level of educational attainment of females has been higher than males since 1991 and the discrepancy is unlikely to widen further. It should be noted that the percentage of females in administrative/managerial positions was comparatively low in Hong Kong in 1993: 6% in Hong Kong versus 13% in Australia and 14% in Canada. Removal of the “glass ceiling” for females in managerial positions would help, but the process will be slow.

	Since 1999, the “new economy” has developed extremely rapidly in Hong Kong and the wages of IT personnel have risen rapidly. Most of the IT staff are male. An alarming sign is that the gender wage ratio has widened from 0.89 in 1998 to 0.87 in 1999. This may reflect the increasing importance of the “new economy”.  In Hong Kong, encouragement of IT proficiency for females, and removal of  “glass ceiling” are more pertinent issues than equal value.

	References

Becker, Gary S., 1985. “Human Capital, Effort, and the Sexual Division of Labor”, Journal of Labor Economics, 3(1), Part 2, January, pp 33-58.

Blinder, A. S., 1973. AWage Discrimination: Reduced Form and Structural Estimations@, Journal of Human Resources, 8, pp. 436-55.

Brown, R. S., Moon, M. and Zoloth, B. S., 1980. AIncorporating Occupational Attainment in Studies of Male/Female Earnings Differentials”, Journal of Human Resources, 15, pp. 3-28.

Killingsworth, Mark R., 1987, “Heterogeneous Preferences, Compensating Wage Differentials, and Comparable Worth”, Quarterly Journal of Economics, 102(4), November 1987, pp. 727-42.

Lawler, Edward E. III.  (1986).  What=s Wrong with Point-Factor Job Evaluation.  Compensation & Benefits Review, 18(2), 20-28.