Wage inequality: a (much too) gradual approach

The Swiss Parliament upper chamber sent a bill on men-women wage equality back to committee, showing that politicians still struggle to take this issue as seriously as it should. The economic case put forward does not hold.

Inequality is a fact

The wage gap between Swiss men and women has been studied in detail and is only partially accounted for by differences in training or sector of activity. Even when taking a broad range of factors into account, an unexplained gap of 7.4 percent remains. This amounts to a 13th monthly paycheck, or about 600 Swiss francs per month.

The voluntary approach has not worked

The Swiss pragmatic approach is to first try to solve problem without putting in place a constraining law. This is a sensible approach, but after a while it has to lead to results. The persistent wage gap, despite the fact that wage equality has been put in the Constitution 37 years ago, is a failure. No company would keep a manager who would not have brought a project to completion after 37 years!

Some pressure is thus – unfortunately – necessary. Note that the slow pace of the voluntary approach does not necessarily reflect bad will, but could simply be due to a standard problem of complementarity between the choices of different firms. Let’s consider that all firms would like to raise the wage of women. The decision of an individual firm depends however on what its competitors do. If they leave their wages unchanged, the firm trying to be fair will face problems of competitiveness. If however competitors raise wages, then our firms can easily do so. There is thus a need for coordination of choices. If the business world cannot achieve it on its own, a constraining law is necessary to fill this role.

Equality and labor cost

An increase of women’s wages by 7.4 percent is a real cost for firms. We could however spread it through time to make it more bearable. And if this is the core of the problem, there is a very simple (and provoking) solution: instead of raising women’s monthly wages by 600 francs, let’s raise them by 300 francs and lower men’s by 300 francs. Equality would be reached with only a moderate cost to the economy, cost that seemed to be front and center in Swiss Senators’ mind this week. So gentlemen, how about a gesture good for equality and firms’ competitiveness?

Cédric Tille

Cédric Tille est professeur d'économie à l'Institut des IHEID de Genève depuis 2007. Il a auparavant travaillé pendant neuf ans comme économiste chercheur à la Federal Reserve Bank of New York. Il est spécialiste des questions macroéconomiques, en particulier des politiques monétaires et budgétaires et des dimensions internationales comme les flux financiers.

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