In our Guide to Wage Differentials, we established that wages are usually set by Supply and Demand. However, if that is true, why does the Gender Pay Gap still persist in 2026?

If you are an Economics student, you need to look beyond the headlines. In the exam, “discrimination” is only one part of the answer. To get the top marks, you need to understand Market Failure, Occupational Segregation and Human Capital Theory.

What is the difference between “Unequal Pay” and the “Gender Pay Gap”?

The Answer: It is about the average, not the individual.

Many people wrongly believe that the gender pay gap means men and women are paid differently for the same job. Many people believe that the pay gap refers to different salaries for identical positions. In the UK, it is illegal to pay a woman less than a man for the same role. This law has been in place since the Equal Pay Act of 1970.

The Gender Pay Gap is the difference between the average earnings of all men and all women in an economy. It is a structural issue, not just a payroll issue.

Why do “Female-Dominated” industries pay less?

The Answer: Occupational Segregation.

Economists point to Horizontal Segregation. This is when men and women are clustered into different sectors.

• STEM and Finance: Highly productive, high-revenue sectors (High MRP) tend to be male-dominated.
• Care and Education: Socially vital but often lower-revenue sectors tend to be female-dominated.

The Derived Demand for labour in finance is higher than in social care. Therefore, a gap opens up before we even consider individual performance.

What is the “Motherhood Penalty” in Economics?

The Answer: Human Capital Depreciation.

One of the biggest drivers of the pay gap is the interruption of experience. When women take time out of the workforce for childcare, their Human Capital may stagnate. This includes both their skills and experience.

While they are away, their male counterparts continue to move up the Marginal Revenue Product (MRP) curve. This leads to Vertical Segregation (the “Glass Ceiling”), where men hold a disproportionate number of high-paying senior management positions.

Does Discrimination play a role in the Gender Pay Gap?

The Answer: Non-Pecuniary Disadvantages.

Even in a “rational” market, discrimination exists. Employers may hold “taste-based discrimination,” subconsciously perceiving women as higher-risk hires due to potential future maternity leave. This shifts the Demand Curve for female labour to the left. It results in lower equilibrium wages compared to men with identical qualifications.

How can the Government close the gap?

The Answer: Correcting Market Failure.

To rank highly in your Economics essays, you should evaluate these solutions:

1. Subsidised Childcare: Increases the supply of female labour and reduces the “motherhood penalty.”
2. Pay Transparency: Forcing companies to publish their pay gaps (as seen in the UK) reduces information gaps.
3. Encouraging STEM: Shifting the supply of female labour into high-MRP industries.

The Apollo Scholars Verdict

The Gender Pay Gap is not just a social issue; it is an Efficiency Issue. A society that does not fully utilise the human capital of half its population causes an inward shift. This shift affects the entire Production Possibility Frontier (PPF).