Sep 9, 2023 - Economy & Business

For one UK city, the cost of underpaying women is bankruptcy

Illustration of a woman sitting on a small stack of quarters while in the shadow of a larger stack of quarters.

Illustration: Aïda Amer/Axios

The U.K. city of Birmingham has gone from a triple-A credit rating to bankruptcy in less than 10 years. The reason: It underpaid its female employees for many years.

Why it matters: Paying women less than men can save money in the short term; it can also cause fiscal disaster in the long term.

Driving the news: Birmingham City Council is the largest local authority in the U.K. in terms of budget size. In 2012, a U.K. Supreme Court ruling allowed thousands of women to sue the city over equal pay — and now, after £1.1 billion ($1.4 billion) has already been paid out, the city has effectively declared bankruptcy in the face of even more pay claims, amounting to as much as £760 million ($950 million).

Zoom out: Birmingham is far from the only employer to find itself facing massive wage settlements.

  • In the U.S., universities including Princeton, Syracuse and the University of Denver have faced seven-figure back-pay bills in the wake of lawsuits from female professors. Vassar College, dedicated to the cause of women's equality, could be next.
  • Players on the U.S. women's soccer team won a $24 million settlement last year, most of it back pay. Their counterparts in Spain are striking for something similar.
  • Goldman Sachs recently paid $215 million to settle a class-action lawsuit alleging gender bias and discrimination.

The big picture: Women have been paid less than men for as long as they have been in the workforce.

  • Regardless of how employers fix that problem going forward, they still face the question of how and whether they will make whole the women who were underpaid for many years. (The alternative — clawing back pay from men who were overpaid — seems to be a non-starter.)

By the numbers: Americans in total are paid about $12 trillion per year.

  • Women make up about 46% of the workforce and get paid about 85% of what men are paid.
  • So out of that $12 trillion, roughly $5 trillion per year is paid to women.
  • If those women had just a single year's pay retroactively increased by a mere 5%, the total cost would come to $250 billion. Over multiple years and with greater adjustments, the sum could easily rise into the trillions.

The bottom line: Should the courts start finding that a multitrillion-dollar injustice deserves a multitrillion-dollar remedy, many more employers could find themselves sharing Birmingham's fate.

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