Cevat Giray Aksoy Research Economist in the Office of the Chief Economist at the European Bank for Reconstruction and Development and Researcher at The London School of Economics (LSE), discusses how sexual orientation affects earnings in the UK.
Cevat’s main research interests are inequalities in the labour market, entrepreneurship and the economics of fertility. He also contributes to the social inclusion agenda of the World Economic Forum and writes for LSE Business Review and the academic collaborative blog Openpop.org. Follow Cevat on Twitter @cevatgirayaksoy.
The earnings effects of sexual orientation: How being in a partnership matters
Since the mid 1990s, sexual orientation based labour market discrimination has been investigated by a number of researchers (Badgett 1995, Black et al. 2003, Arabsheibani et al. 2004, Plug and Berkhout 2004 and others). These studies frequently find sizable earnings differences; partnered gay men earn significantly less than partnered heterosexual men and partnered lesbian women earn significantly more than partnered heterosexual women. Where individual level self-reports of sexual orientation are available, the earnings differences are generally smaller.
Due to limited data availability, previous studies have struggled with a trade-off between representativeness and sample size. Couples-based datasets such as population Censuses in Canada, the United States, and the United Kingdom yield very large samples of same-sex couples but do not identify the sexual identity of non-partnered individuals. In contrast, datasets with individual level information on sexual orientation or sexual behavior have generally been much smaller in size. The few studies with individual level information on sexual orientation and reasonably large samples of sexual minorities have been limited to single states (e.g., Carpenter 2005), limited to young adults (e.g., Plug and Berkhout 2004), or lacked information on labor market earnings (Carpenter 2008a). As a result, it has been difficult to know whether differences in estimated earnings effects of a minority sexual orientation in different studies are due to differences in the samples, populations, or outcomes. Similarly, it has been difficult to disentangle alternative theories underlying sexual orientation-based differences in labor market outcomes (e.g., specialisation versus discrimination).
Nationally Representative Dataset with Direct information on Sexual Orientation
In one of my latest publications, Sexual Orientation and Earnings – New Evidence from the United Kingdom, my co-authors and I have overcome the data-related challenges by using linked data from confidential versions of the 2012-2014 UK Integrated Household Survey (IHS) and high quality labour market earnings data from the Annual Population Survey. To our knowledge it is the first countrywide dataset with both partnership status and self-identified sexual orientation combined with high-quality data on labor market earnings.
These data allows us to identify large samples of sexual minority individuals – over 2,500 self-identified lesbians, gay men, and bisexuals (LGB) – through responses to a direct question about sexual orientation. It also permits us to identify not only individual level sexual orientation but also same-sex partnerships. This means we can directly test for how measurement of sexual orientation (i.e., individual level self-reports versus same-sex partnerships) is related to earnings differences between sexual minorities and heterosexuals. These data also allow us to comment more directly on the possible explanations for earnings differentials.
Partnership Status Matters – Full Time Employment
Our research findings show that having data on both partnered and non-partnered sexual minorities is substantively important. Our full time employment models indicate that gay (bisexual) men are 4.5 (11.9) percentage points less likely to be working full-time than otherwise similar heterosexual men. Notably, this difference for gay men is driven by the partnered sample. Partnered gay men are 6.1 percentage points less likely to be working full time than otherwise similar partnered heterosexual men. In contrast, the difference for bisexual men is driven primarily in the non-partnered sample, where non-partnered bisexual men are 11.7 percentage points less likely to be working full time than otherwise similar non-partnered heterosexual men.
For women, we show that lesbians are 8.2 percentage points more likely to be working full-time than otherwise similar heterosexual women, while bisexual women are 5.4 percentage points less likely to be working full-time. As with gay males, the lesbian difference in full-time employment (although of opposite sign to that for gay males) is predominantly driven by the partnered sample. Partnered lesbians are 15.4 percentage points more likely to be working full time than similar partnered heterosexual women.
Partnership Status Matters – Earnings
Turning to the earnings models, after controlling for observable determinants of earnings (such as education, location, and family structure), we find a positive and statistically significant earnings differential for partnered lesbians compared to partnered heterosexual women, but no earnings differential for non-partnered lesbians compared with similarly situated non-partnered heterosexual women.
Our findings also show a negative and marginally significant earnings penalty for partnered gay men compared to partnered heterosexual men but no earnings differential for non-partnered gay men compared with similarly situated non-partnered heterosexual men. Taking together the overall population of both partnered and non-partnered individuals, we find that the earnings difference associated with a gay sexual orientation for men is near zero, while the associated population-based earnings difference among women associated with a lesbian orientation is a premium of about 5.5 percent and is statistically significant.
Specialisation or Discrimination?
Gender and race-specific differences in earnings have been well-documented, but there has been far less evidence on sexual orientation-based pay gaps. Our research contributes to this debate by showing that household specialisation plays an important role in understanding the pay difference between sexual minorities and heterosexual individuals. Traditional heterosexual partnerships typically involve gendered specialisation, with the man more engaged in market activities than the woman, particularly given the prevalence of children among heterosexual couples. Even if the degree of household specialisation were the same in heterosexual and gay male households, gendered heterosexual specialisation means that the average partnered heterosexual man will be more focused upon market activities than the average partnered gay man. By the same argument, the average partnered lesbian will be more focused upon market activities than the average partnered heterosexual woman. These differences should not accrue to non-partnered individuals. These specialisation-based predictions hold in our data. Our findings that the lesbian premium among partnered individuals accrues approximately equally to lesbians who are self-defined as household heads and lesbians who are not household heads, also supports the idea that there is less specialisation in a lesbian household.
While comparative specialisation within the household is our preferred explanation for most of our results, there is some limited evidence for the presence of discrimination as an explanatory factor. Our results show that it is older gay men and partnered gay men that earn less than comparable heterosexual men. It is likely that the lack of a heterosexual marriage becomes more of a signal of sexual minority status as an individual gets older (Carpenter 2007, Frank 2007). Partnered gay men may also be more observable as being gay than non-partnered counterparts. They may have photos of a same-sex partner or list their same-sex partner as a beneficiary, for example. If there is discrimination against gay men, these more observable individuals may bear a greater penalty. Further, the gay male penalty only occurs outside London, where there may be a stronger taste for discrimination. Finally, the bisexual male penalty only occurs in the private sector and not the public sector where there are greater protections against discrimination.
Taken together, then, our unique samples of partnered and non-partnered sexual minorities and high quality data on earnings provide novel evidence supporting a role for specialisation in explaining sexual orientation-based differences in labour market earnings, with less evidence for selectivity and limited and mixed support for discrimination.
Our paper was first published as a European Bank for Reconstruction and Development Working Paper and it received attention from international media and policy outlets, including the World Economic Forum, Quartz, IZA World of Labor, LSE Business Review and VOX, among others. This simply reflects the importance of the issue.
- Aksoy, Cevat Giray, Christopher Carpenter and Jeff Frank (2017, forthcoming). “Sexual orientation and earnings: new evidence from the United Kingdom”, Industrial and Labor Relations Review, DOI: 10.1177/0019793916687759
- Arabsheibani, G. Reza, Alan Marin, and Jonathan Wadsworth (2005). “Gay Pay in the UK,” Economica 72: 333-347.
- Badgett, M.V. Lee (1995). “The Wage Effects of Sexual-Orientation Discrimination,” Industrial and Labor Relations Review, 48(4): 726-739.
- Black, Dan, Hoda Makar, Seth Sanders, and Lowell Taylor (2003). “The Earnings Effects of Sexual Orientation,” Industrial and Labor Relations Review, 56(3): 449-469.
- Carpenter, C (2005). “Self-Reported Sexual Orientation and Earnings: Evidence from California,” Industrial and Labor Relations Review, 58(2): 258-273.
- Carpenter, C (2007b). “Do Straight Men ‘Come Out’ at Work Too? The Heterosexual Male Marriage Premium and Discrimination Against Gay Men.” In M. V. Lee Badgett and Jeff Frank (Eds.) Sexual Orientation Discrimination: An International Perspective, New York: Routledge Press.
- Carpenter, C (2008a). “Sexual Orientation, Work, and Income in Canada,” Canadian Journal of Economics, 41(4): 1239-1261.
- Frank, Jeff (2007). “Is the male marriage premium evidence of discrimination against gay men?” In M. V. Lee Badgett and Jeff Frank (Eds.) Sexual Orientation Discrimination: An International Perspective, New York: Routledge Press.
- Plug, Erik and Andrew Berkhout (2004). “Effects of Sexual Preference on Earnings in the Netherlands,” Journal of Population Economics, 17(1): 117-131.