Multiple Disadvantage and Wage Growth: The Effect of Merit Pay on Pay Gaps

• Author: Carol Woodhams,Ben Lupton,Graham Perkins,Marc Cowling
• Date: 01 March 2015
• Published date: 01 March 2015
• DOI: http://doi.org/10.1002/hrm.21692

Human Resource Management, March–April 2015, Vol. 54, No. 2. Pp. 283–301

© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21692

Correspondence to: Carol Woodhams, University of Exeter Business School, Streatham Court, Rennes Drive,

ExeterEX4 4PU, UK, Phone: +44 (0)1392 722137, Fax: +44 (0)1392 723210, E-mail: C.Woodhams@exeter.ac.uk

groups experience, on average, a pay gap in rela-

tion to their more privileged counterparts (Green

& Ferber, 2005; Longhi & Platt, 2008). Recent

evidence from the United Kingdom (Woodhams,

Lupton, & Cowling, 2013) indicates that mul-

tiple disadvantage is associated with lower pay:

people with more than one disadvantaged iden-

tity are paid less on average than those with a

single disadvantage, and the more labor market

disadvantages someone carries, the lower (on

This article is concerned with the impact of

pay progression in organizations on wage

growth among disadvantaged groups in

the labor market (specifically, women,

ethnic minorities, and people with dis-

abilities). We focus specifically on the impact

on those with more than one such disadvantage

and give particular attention to the role of merit

pay in wage growth inequalities. It is well known

that in Western societies people in disadvantaged

MULTIPLE DISADVANTAGE AND

WAGE GROWTH: THE EFFECT OF

MERIT PAY ON PAY GAPS

CAROL WOODHAMS, BEN LUPTON, GRAHAM PERKINS,

AND MARC COWLING

This article concerns rates of wage growth among women and minority groups

and their impact on pay gaps. Specifi cally, it focuses on the pay progression

of people with more than one disadvantaged identity, and on the impact of

merit pay. Recent research indicates that pay gaps for people in more than one

disadvantaged identity category are wider than those with a single-disadvan-

taged identity. It is not known whether these gaps are closing, at what rate, and

whether all groups are affected equally; nor is it known whether merit pay allevi-

ates or exacerbates existing pay gaps. In addressing these issues, the analysis

draws on longitudinal payroll data from a large UK-based organization. Results

show that pay gaps are closing; however, the rate of convergence is slow rela-

tive to the size of existing pay disparities, and slowest of all for people with

disabilities. When the effect of merit pay is isolated, it is found to have a small

positive effect in reducing pay gaps, and this effect is generally larger for dual/

multiple-disadvantaged groups. These fi ndings run counter to the well-estab-

lished critique of merit pay in relation to equality outcomes. The implications of

this are discussed, and an agenda for research and practice is set out. ©2015

Wiley Periodicals, Inc.

Keywords: research methods and design—quantitative research methodology,

research methods and design—multivariate regression, pay for performance,

gender diversity, diversity

284 HUMAN RESOURCE MANAGEMENT, MARCH–APRIL 2015

Human Resource Management DOI: 10.1002/hrm

Pay progression

within organizations

may arise from

promotions, annual

incremental rises,

cost-of-living awards,

and merit-pay

awards. We have a

specific interest in

the latter.

19.5 percent (ONS, 2011). This gap is smaller for

women working full time (9.1 percent; ONS, 2011)

but much higher (34.5 percent; Perfect, 2011)

for women working part time. Most UK ethnic

minority groups suffer a pay gap in relation to the

“White British” category (Brynin & Güveli, 2012),

as high as 22.9 percent for men of Pakistani ori-

gin (Metcalf, 2009), though there are substantial

differences in the experiences of different ethnic

groups (Elliott & Lindley, 2008). Disabled work-

ers are, on average, paid less than nondisabled

workers (Longhi & Platt, 2008; Metcalf, 2009),

with gaps of between 6 percent and 26 percent

reported, though this is sensitive to the severity

of impairment (Malo & Pagán, 2012). Both older

and younger workers suffer pay gaps in relation to

employees in “mid-career.” Average hourly pay in

the United Kingdom peaks in the 40–49 age range,

with workers aged 22–29 years and those aged

over 60 experiencing pay gaps of over 20 percent

in relation to this group (Metcalf, 2009).

Rather less is known about the pay deficits

experienced by people in more than one disad-

vantaged category, that is, those who are in dual,

triple, or even quadruple axis categories (Browne

& Misra, 2003). Recent research on multiple-disad-

vantaged identity and pay (Woodhams etal., 2013)

indicates that the more labor market disadvantages

(i.e., in relation to gender, ethnicity, disability, and

age) an employee has, the lower their pay is on

average; in this study, the gap in median earnings

was over £8,000 ($13,000) per year between the

most advantaged and disadvantaged groups. These

authors found that the effect of accumulation of

disadvantaged identities on pay was in many cases

greater than would arise from simply adding the

pay penalties arising from single identities, and

this effect tended to be more marked among mul-

tiple-disadvantaged identity groups.

There is evidence that gender pay gaps have

narrowed over the long term in the United

Kingdom and other Western economies. For

example, between 1970 and 2006 (in the United

States) there was a 44 percent growth in women’s

pay compared with 6 percent for men (Butler,

2010). However, in relation to gender, the pace of

change has been uneven, and wage growth has not

benefited all female workers to the same extent

(Blau & Khan, 2006; Grimshaw, Whitehouse, &

Zetlin, 2001; Mason, 2011). Very little evidence

is available as to the change in pay gaps affect-

ing people with dual- or multiple-disadvantaged

identities. There is some evidence around gender

and ethnicity in the United States; for example,

Anderson and Shapiro (1996) report that black

women’s pay rose from 50 percent of the white

average in 1940 to parity in 1980 before slipping

average) is their pay. While there is evidence that

the gender wage gap in the United Kingdom and

elsewhere is declining (Blau & Khan, 2006; Green

& Ferber, 2005; Office for National Statistics

[ONS], 2011; O’Neill, 2003)—though it remains

substantial—less is known about the relative

wage growth experienced by other disadvantaged

groups (Brynin & Güveli, 2012; Malo & Pagán,

2012) and less still in relation to those with mul-

tiply disadvantaged identities.

Here, we focus on pay progression as a con-

tributor to wage growth and the narrowing or

otherwise of pay gaps. Pay progression within

organizations may arise from promotions, annual

incremental rises, cost-of-living awards, and merit-

pay awards. We have a specific interest in the latter.

Merit-pay schemes, though increasingly popular

(Salimäki & Jämsén, 2009), have been criticized

in relation to their impact on payment equality

on the grounds that their subjectiv-

ity gives expression to preexisting

prejudices (Castilla & Benard, 2010;

Elvira & Graham, 2002) or that the

way that merit is conceived serves to

exclude disadvantaged groups from

access to it (Kumra, 2010), legitimiz-

ing and reinforcing existing hierar-

chies (Son Hing etal., 2011). These

arguments would suggest that merit

awards would be lower for disadvan-

taged groups, thus contributing to

relatively lower wage growth and,

ceteris paribus, a widening of pay

gaps. The thrust of earlier research

on multiple-disadvantaged iden-

tities and pay (Woodhams et al.,

2013) might also lead one to expect

that those with dual- or multiple-

disadvantages would fare worse in this respect.

While that research drew on cross-sectional pay

data, here we can draw on longitudinal data from

a large private-sector organization in the United

Kingdom that operates a merit-pay scheme to

show whether pay progression is reinforcing (or

indeed alleviating) the link between multiple dis-

advantage and lower pay. We start by reviewing

what is known about pay gaps, wage growth, and

the impact of merit-pay schemes on employment

equality.

Multiple Disadvantage, Pay Gaps, and Wage

Growth

Pay gaps relating to equality strands in the United

Kingdom and elsewhere are well documented

when groups are contrasted on a single axis of

“difference.” The median hourly pay gap between

men and women in the United Kingdom stands at