Is there a gay wage gap? How does it affect the economy?

07-05-21 / 6 min read

The wage gaps that exist between men and women and between white and black people have received a lot of attention in recent years. But there’s another wage gap that tends to be overlooked – between heterosexuals and LGBT+ people.

Interestingly, it works in two different directions: most studies show a wage penalty for gay men but a wage premium for lesbian women compared with their heterosexual counterparts. One analysis of 32 studies from several countries found that on average, gay men earned 11% less than heterosexual men, while lesbian women earned 9% more than heterosexual women. Studies and surveys have also shown a negative wage gap for bisexual and also for transgender people, though the evidence is much more limited, particularly for transgender people.

Within the data on gay people, there are also variations between countries and depending on how exactly sexual orientation is classified, for example whether it’s based on survey evidence or cohabitation – and there are studies such as one from the US that found gay men actually earning more. But if the numbers above reflect a broad average, why do such differences arise?

One possible explanation is the work choices that gay people make. Research suggests gay men are more likely to avoid occupations that are more male-dominated than other men (which includes the best paid jobs), while lesbian women are more likely to avoid female-dominated occupations than other women (which are typically worse paid). Lesbians may also earn more because they tend to work longer hours.

But why do gay people enter different professions? It may be because they make different educational choices. For instance, LGBT+ students in the US are less likely to finish school and attend university than other students. American men in same-sex couples are more likely to obtain a bachelor’s degree than men in different-sex couples, but they are 12 percentage points less likely to complete their degree in a STEM subject.

The role of discrimination

A key question is whether these differences in wages and choice of employment are driven by prejudice, or whether they are the result of some innate, work-relevant traits of gay people related to their preferences or skills. If gay men are paid less because of prejudice, then society is not making the best use of their skills and productivity. This would be economically inefficient and would hold back output, because it would suggest that gay men are not making the contribution that they could.

It’s not easy to get to the bottom of why these differences in wages and employment exist. But recent research using various methods has certainly found that discrimination is a key driver.

I will highlight three examples. First, research from Australia has shown that gay and lesbian workers choose to enter occupations with fewer prejudiced workers, with male-dominated occupations more likely to feature discrimination.

Second, in a research experiment in the US, participants were asked to evaluate CVs. Some of the CVs made references to LGBT+ activities while others did not. Male participants penalised CVs that included an LGBT+ activity.

Third, discrimination of LGBT+ people emerges in workplace surveys. For instance, Stonewall and YouGov found in 2017 that 18% of LGBT staff in the UK had been a target of negative comments or conduct from work colleagues in the previous 12 months because of their sexual orientation.

Inclusion and economic benefits

Discrimination against gay people is a global issue. The Franklin & Marshall Global Barometer of Gay Rights gave 62% of countries a failing grade on legal and social protections afforded to LGBT+ people in 2018. Contrasts among countries are wide. For example, Finland scored 96% in the barometer, while Russia scored just 19%.

This raises the question of whether it is possible to quantify the potential economic consequences of this discrimination, particularly in countries that lag the world’s leaders in both economic output and LGBT+ rights.

One approach is to estimate the lost productivity due to discrimination among gay people, based on research from countries where such data are available. These estimates can then be applied to the GDP of other countries. Open For Business, a global coalition of companies, on whose research advisory board I sit, has just done exactly that for Hungary, Poland, Romania and Ukraine – four countries with GDP per capita and LGBT+ inclusion ratings well below the European average.

At the low end, the report estimates that LGBT+ discrimination costs the Hungarian economy between 0.1% and 0.2% of GDP each year, or around £200 million. At the high end, the estimated cost to the Romanian economy is between 0.6% and 1.7% of GDP, or up to £3 billion.

Pride march in Budapest, Hungary, 2019. Zoltan Galantal/Alamy

While these figures are unlikely to make or break a country’s economy, they are substantial in context. For instance, the Romanian government’s spending on education was 3.1% of GDP in 2017. Lost GDP from limited LGBT+ inclusion could fund half of that spending every year.

Moreover, these estimates only represent direct costs of exclusion. There could be additional, indirect economic costs related to brain drain, adverse effects of discrimination on well-being, or even foreign investors going elsewhere because they worry that the prejudice in a country’s workforce could harm their reputations.

One thing that this report does not consider is the potential negative effects of inclusion. For instance, could higher participation of gay people in the workforce actually deter prejudiced heterosexual people from, say, working as productively, or even working at all?

There are two reasons why this is unlikely. First, several studies on the legalisation of same-sex marriage in the US have found no effect on different-sex couples, including no impact on the probability of whether they are employed.

Second, even though prejudice does exist, attitudes do shift as LGBT+ rights evolve. Recent research has shown that attitudes towards LGBT+ people turned more positive after laws recognising same-sex relationships were enacted across Europe. More inclusive laws led to more tolerant views – not the opposite.

One explanation is that equality laws confer legitimacy toward sexual minorities – and attitudes adjust in response. This suggests that such laws could eventually be accepted, even in countries where acceptance of LGBT+ people is low.

If so, and given the potential economic benefits, it is another reason why greater inclusion is worth pursuing. Beyond the level of individual countries, this could also bring benefits for the global economy

Research Fellow in Economics, Regent’s Park College, University of Oxford

This article was originally posted by The Conversation. Read the Article here.