Motu News September 2017

Sep 15, 2017

From the Director of Motu Economic and Public Policy Research

Adam Jaffe portrait2Social science research has a somewhat odd place in New Zealand. For starters, there is ambiguity about what it includes. For some 'social science' is a category that excludes quantitative, statistically-based research, such as much of that conducted by Motu and other economists. This exclusion is reinforced by the practice of housing university economics departments in schools of Business or Commerce, while 'social sciences' are part of an Arts faculty.
The social sciences - within which I include economics - seek to understand how people interact with each other, and how the organisational, legal, political and historical contexts of those interactions affect what happens. Some of this research is implicitly or explicitly normative, i.e. it attempts to determine under what circumstances people enjoy better outcomes. Sometimes the concept of 'what good outcomes are' is well-defined and sometimes it is only presumed. Other research simply tries to elucidate how outcomes are determined, without necessarily taking any position on which outcomes desirable.
In addition to scratching the innate itch to better understand the world we live in, the social sciences are vitally important to our wellbeing. Every day we see social outcomes that we wish were different, whether it is human degradation of our environment, children still suffering from diseases that we know how to prevent, or housing that seems unaffordable. 'Make it better' is a natural response. But if such problems have a solution (and not all do), finding and implementing that solution requires reliable understanding of how the underlying social systems work, and how they will respond to attempts to change them. Such understanding can only come from social scientific research.
Every country faces difficult choices regarding how and to what extent it should invest in funding scientific research, because the payoff for such research is potentially large but also uncertain and difficult to quantify. For a small country like New Zealand, any research we do will always be a very small fraction of world research in any given research area. Because we are such a small player, our science investments should be designed to foster our ability to take advantage of the research done elsewhere. In the natural sciences, this is largely about our capability to understand and adapt such research to our needs, because the phenomena themselves are the same everywhere. But the social sciences are different in this regard. While the 'behaviour' of ions in water is the same everywhere, the behaviour of people in social systems is very much dependent on social context. This means that our ability to make public choices based on research done abroad will always be more limited with respect to the operation of social systems than the operation of natural systems. If we want to be able to improve our social systems, we must do our own social science research.

Adam Jaffe
Director and Senior Fellow


Sexism to blame for majority of gender wage gap

Visual Abstract11A world first examination of the gender wage gap has researched employees’ productivity to see how much sexism is to blame for the difference in women and men’s pay. The study by researchers at Motu found that men and women were statistically indistinguishable in how much value they add to their firms, but the average woman was paid only 84 cents for every $1 for the average man.

“This study is different to most previous wage gap studies in that it tests whether men and women are paid different wages for adding the same amount of value to their employer,” said Isabelle Sin, Fellow at Motu and lead researcher.

The study started by looking at 50 percent of the working population between 2001 and 2011 to see how much of the overall gap between women and men’s wages is to do with women working in industries that pay less. It found women were over-represented in low-paying industries like food and beverage services, but this explains a mere 7% of the entire gender wage gap (or a couple of cents in every dollar).

“If you add in the fact that women also tend to work in low-paying firms, we can say that 12 percent of the overall gender wage gap is due to the particular industries and firms where women work,” said Dr Sin.

The study then looked at productivity and wages of men and women in private for-profit firms with at least five employees and found a 16 percent gender wage-productivity gap, meaning women are paid 16 percent less for making a contribution of the same value to their employer. Previous studies used observable characteristics such as education and age to capture differences in the value contributed by employees. In contrast, this research used employee-level data linked to business information. It looked directly at how the output of similar firms varies with the gender mix of the employees, and used this to infer the relative value male and female employees add to their firms.

“We didn’t find any evidence that young women are paid less than young men for work of the same value, but there was a 16 percent pay gap for women aged 25-39, a 21 percent gap for those aged 40-54, and a 49 percent gap for older women.”

The gender wage-productivity gap is also higher for employees who have worked at the same firm for longer. For both genders, productivity is higher for workers who have been at the firm for longer, but the wages of women with greater tenure are not commensurately higher. That is, the gender wage-productivity gap does not go away once women have had the chance to demonstrate their worth to their employers.

The gender wage-productivity gap was particularly marked in a few industries. The gap was over 40 percent in finance and insurance, telecommunications, transport equipment manufacturing, water and air transport, and electricity, gas and water, and rail. It’s worth noting that these are all sectors that have the potential for monopoly-created profits and have low competition.

Based on how the gender wage-productivity gap varies across industries and years, the research also concluded that differences in willingness or ability to bargain are unlikely to play a major role in the gender wage-productivity gap.

“To put it simply, our research suggests sexism is likely to be a major driver of the gender wage gap. What we’re going to do about it is another matter,” said Dr Sin.

Dr Sin is, however, encouraged by the ability to use this kind of analysis to better understand other workplace discrimination as it is a useful methodology to look at wages gaps of all kinds. She hopes in the future to look at differences by such characteristics as immigration status, ethnicity, and family status.

The paper: What drives the gender wage gap? Examining the roles of sorting, productivity differences, and discrimination by Isabelle Sin, Steven Stillman and Richard Fabling was funded by a Marsden Grant from the Royal Society of New Zealand.


Human Rights Measurement Initiative Launches

larm rmah 216854 lowresAs Nobel laureate Joseph Stiglitz said: “In this world in which we are so centered on metrics, those things that are not measured get left off the agenda…. You need a metric to fight a metric“. The aim of the Human Rights Measurement Initiative (HRMI) is to create a comprehensive and reliable set of metrics for monitoring the human rights performance of countries. Anne-Marie Brook, Policy Fellow at Motu is leading this initiative, which now has a live website. Check it out.

Human rights metrics are not, however, an end in themselves. Ultimately, HRMI is motivated by the fact that there are billions of people who – right now – don’t have sufficient access to human fundamentals such as food, education or health care, or who live in a country where they can’t critique their country’s policies, or advocate for change, for fear of jeopardising the safety of themselves or their families. This is what a lack of enjoyment of human rights looks like. Obviously this is a complex problem and the solutions are not simple. But we believe that excellent measures of human rights performance will provide a new tool for advocacy, decision-making, and learning, and help to bring about a paradigm shift.

Measuring human rights performance is both complex and sensitive. So it requires excellent methodology, and far-reaching inclusivity. Two guiding principles underpin the development of our metrics. First, we are building on existing expertise wherever possible. Second, we have committed to a user-centred design process.

HRMI is a collaboration of many of the world’s leading experts in the human rights field. In the area of civil and political rights, for example, we are combining the expertise of human rights practitioners who monitor events around the world, and academics who have a lot of experience in measuring human rights. Using our expert opinion survey, and advanced statistical techniques, we will produce consistent cross-country metrics. Metrics will cover things like arbitrary arrest, torture, freedom of expression, and the right to participate in government. This will help fill a critical data gap. It will also overcome the problems of under-reporting and the inability to compare countries that plague existing objective measures of human rights violations across countries. Pilot metrics for 12 countries will be released in the first few months of 2018.

You can sign up to receive the HRMI newsletter here.


Deep South National Science Challenge

erlend ekseth 33567Motu is conducting work under the Deep South National Science Challenge. The mission of this project is to enable New Zealanders to adapt, manage risk, and thrive in a changing climate. Suzi Kerr is the leader of the Impacts and Implication Programme, which is aiming to understand the potential impacts and implications of climate change for New Zealand to support planning and decision-making, and aid adaptation efforts. 

The main thrust of Motu's current work is to co-create research directions through special Dialogue meetings. These dialogues are designed to help the Deep South tailor a portion of its research funding through collaboration among physical scientists, social scientists, and research end users. The aim is to identify research that is decision relevant, high priority, of broad benefit to society, and making a significant contribution.

The group of participants in each dialogue is small and carefully selected to jointly bring a wide range of experiences and perspectives. Participants hail from physical and social sciences, local and central government, non-government organisations, iwi, and industry communities. The process encourages them to work together in the interests of Aotearoa New Zealand, not as representatives of specific interests or organisations. The dialogue involves two meetings. The first involves discussion of the research landscape for a specific adaptation problem, where participants identify key concerns and research gaps, and build trust. The second involves the collation of a long-list of researchable questions, prioritization through a transparent voting process, and developing up to six research questions. These final questions go through a closed RFP for funding from the Tailored Fund of the Impacts and Implications programme. We aim to fund 2-3 projects per dialogue. A discussion paper is also released on the Deep South and Motu websites mapping current knowledge so the understanding developed is captured and accessible. The first of these papers is available here.

Three dialogues have now taken place:

  • Insurance and coastal housing: co-led by Professor Ilan Noy of Victoria University of Wellington. This dialogue brought together a range of participants including from the Reserve Bank, Resilient Organisations, Department of Prime Minister and Cabinet, GNS Science, and the Insurance Council.
  • Flood-prone communities and vulnerability: co-led by Dr Janet Stephenson from the Centre for Sustainability at University of Otago. This dialogue brought different voices together, including people from the Parliamentary Commissioner for the Environment, Te Runanga o Ngāi Tahu, Age Concern, Dunedin City Council, and the Ministry for the Environment, as well as a former Environment Court Judge.
  • Stormwater and wastewater systems: co-led by Belinda Storey of Victoria University and Professor Iain White of Waikato University. This dialogue involved planning, governance and engineering voices together with physical and social climate scientists, including participants from Waimakariri District Council, Otago Regional Council, Treasury, Tonkin & Taylor, University of Canterbury, NIWA, and Ngāti Makino Iwi Authority.


Motu in the News

New research finds pure sexism main contributor to gender wage gap (TVNZ Breakfast). The rest of the coverage of the gender wage gap paper was wide and is collated here.

Giving sunshine a price tag (RNZ Nine to Noon)

East Coast land study builds case for lucrative native forest future (NZ Herald)

Farmers advocate takes wrong message from climate reports (NZ Herald)

Brian Fallow: Govt's carbon policy? We're thinking about it (NZ Herald)

Women paid less for same contribution to work, and sexism is to blame (The Conversation)


New Motu Publications

"What drives the gender wage gap? Examining the roles of sorting, productivity differences, and discrimination." Working Paper 17-15 by Isabelle Sin, Steven Stillman and Richard Fabling.
As in other OECD countries, women in New Zealand earn substantially less than men with similar observable characteristics. In this paper, we use a decade of annual wage and productivity data from New Zealand’s Linked Employer-Employee Database to examine different explanations for this gender wage gap. Sorting by gender at either the industry or firm level explains less than one-fifth of the overall wage gap. Gender differences in productivity within firms also explain little of the difference seen in wages. The relationships between the gender wage-productivity gap and both age and tenure are inconsistent with statistical discrimination being an important explanatory factor for the remaining differences in wages. Relating across industry and over time variation in the gender wage-productivity gap to industry-year variation in worker skills, and product market and labour market competition, we find evidence that is consistent with taste discrimination being important for explaining the overall gender wage gap. Explanations based on gender differences in bargaining power are less consistent with our findings.

"How political systems and social welfare policies affect well-being: A literature review" Working Paper 17-14 by Robert MacCulloch
This chapter focusses on the question of how formal institutions, like those governing the level of freedom, the regulatory state, political parties and the generosity of the welfare state, affect self-reported well-being. The evidence suggests, for example, that more freedom, as well as government structures which encourage civic engagement, participation and trust, have positive effects. Many studies, however, use cross-sectional data with small sample sizes, often due to institutions being measured at the country level with limited variation over time. As a consequence, further work is needed to test robustness. Stronger results hold with respect to particular types of welfare state institutions, like unemployment benefits, which are subject to quite frequent changes within nations. Increases in unemployment benefits are associated with higher levels of well-being for all workers, probably due to greater income security. However, doubt still persists as to their overall impact, due to the extent to which well-being is adversely affected by the higher taxes needed to support a more generous welfare state.