Gender Pay Gap - Pay transparency policies

Despite efforts to achieve gender equality in the labor market, gender gaps persist globally. Women participate less than men in the workforce, are more likely to hold part-time positions, remain underrepresented in decision-making positions and are paid less than men. 

>According to data, women in the EU earned on average 14.1% less per hour than men in 2019. This gap has remained relatively stable in the past years. 

Recently, several countries have leaned towards pay transparency policies to help reduce this gap. This article summarizes current research work by economists on the effectiveness of this type of policies.

Why could a pay transparency policy be effective in reducing the gender pay gap?

Researchers have largely studied gender inequalities in terms of bargaining power. Women tend to negotiate less than men and demand lower wages. Using data from an online recruitment platform for engineers in the United States, the researcher Nina Roussille found that a significant part of the unexplained pay gap is due, to some extent, to the fact that women ask for lower wages than comparable men: the gender ask gap (1). Giving women information about the median salary offered to similar candidates helped close this demand gap without having adverse effects on women's job searches.

Moreover, in the paper The new age of pay transparency by Richard Trotter, Susan Rawson Zacur and Lisa Stickney, the authors underline that the gender gap persists partly because it's hidden (2) . Information about the gender wage gap and peer’s earnings is thus expected to help close this gap by interfering during the wage negotiation process. For this purpose, institutions recommend introducing pay transparency tools. 

Recommended measures

In 2014, the EU Commission recommended member states to introduce at least one of the following instruments to ensure transparency of pay: 

1. Employees’ right to request information on gender pay levels for the same work of work of equal value
2. Employers’ duty to report on average gender pay levels by category of employee or position 
3. Employers’ duty to conduct an audit on pay and pay differentials on grounds of gender 
4. Measures to ensure that equal pay, including pay audits, is discussed at the appropriate bargaining levels 

These pay transparency instruments are meant to act as information shocks that affect employees bargaining power. Previous analyses have shown that these instruments are not costly and are also welcomed by individuals. Indeed, according to the Eurobarometer, two thirds of Europeans are in favor of publishing average wages by gender. 

What are the effects of these measures in the countries that have implemented them?

Transparency laws have been introduced in many countries and the results are encouraging. Since 2018, firms with more than 250 employees in the UK are required to share mean and median gender hourly pay differentials as well as the percentage of women in each quartile of the wage distribution. An analysis of the short-term effects of the pay transparency law, conducted by Emma Duchini, Stefania Simion and Artur Turell, showed that the law reduced the pre-policy gender pay gap by 15% (3). Likewise, the results from the paper Do Firms Respond to Gender Pay Gap Transparency show that, the gender wage gap declined in Denmark with the introduction of a law requiring firms with more than 35 employees to inform employees of average wages by gender and occupation (4). 

The positive effects observed in terms of the wage gap seem to be driven by a lower growth rate of men’s real hourly pay and by wages in the bottom and middle of the distribution. By affecting firms’ reputation, these laws also had a positive effect in terms hiring and promoting decisions that favor women. Indeed, in the case of the UK, firms are publicly ranked in terms of gender equality, which seems to have pushed managers to act on it. 

Nonetheless, reports and audits alone might not be enough to address gender inequality in terms of earnings. Indeed, the paper by Robert Böheim and Sarah Gust shows that the gender pay transparency law introduced in 2011 in Austria appears to have no significant effect on wages and the gender gap (5). The confidentiality of the reports and the lack of legal consequences for firms in case of unequal wages are suspected to explain this lack of effects. A study in Canada also suggests that the level of pre-policy gap and unionization should be considered when estimating the effect of these laws (6). According to Zoé B. Cullen and Bobak Pakzad-Hurson, NBER affiliates, a high rate of unionization reduces the individual bargaining power of employees and mutes the negative effect of pay transparency policies on average wages that they find in their study (7).

Complementary measures are needed

Pay transparency policies might be effective to reduce the wage gender gap but fail at reducing the gender occupation gap and women's under representation in highest-paid occupations. Furthermore, these laws might have unintended consequences that need to be considered when designing them. 

After the introduction of the gender pay transparency law in Austria, the percentage of female employees declined in large firms relative to slightly smaller ones. Research in Denmark shows that men are less likely to join firms affected by the law due to less attractive wage policies for them. In addition, it exists suggestive evidence that information about pay inequality can have harmful effects on employee’s well-being and effort. 

Pay transparency laws have been widely introduced across countries, though the gender pay gap persists, in particular at the top of the wage distribution. More research is needed to better understand through which mechanisms transparency policies are more likely to help close the gender pay gap. These laws should come hand in hand with a revalorization of feminized jobs and domestic and care work, as well as stricter regulation against pay discrimination.

Article written by María José González, research assistant for the Women in Business Chair at Sciences Po

(1) Nina Roussille. “The central role of the ask gap in gender pay inequality”. In: URL: https://ninaroussille.github.io/files/Roussille_askgap.pdf (2020)

(2) Richard G Trotter, Susan Rawson Zacur, and Lisa T Stickney. “The new age of pay transparency”. In: Business Horizons 60.4 (2017), pp. 529–539.

(3) Emma Duchini, Stefania Simion, and Arthur Turrell. Pay Transparency and Cracks in the Glass Ceiling. CAGE Online Working Paper Series 482. Competitive Advantage in the Global Economy (CAGE), 2020. url:https://ideas.repec.org/p/cge/wacage/482.html.

(4) Morten Bennedsen et al. Do Firms Respond to Gender Pay Gap Transparency? Working Paper 25435. National Bureau of Economic Research, Jan. 2019. doi: 10.3386/w25435. url:http://www.nber.org/papers/w25435.

(5) René Böheim and Sarah Gust. “The Austrian pay transparency law and the gender wage gap”. In: Discussion Paper Series 14206 (Mar. 2021). url:https://www.iza.org/publications/dp/14206.

(6) Michael Baker et al. Pay Transparency and the Gender Gap. Working Paper 25834. National Bureau of Economic Research, May 2019. doi: 10.3386/w25834. url:http://www.nber.org/papers/w25834.

(7) Cullen, Z. B., & Pakzad-Hurson, B. (2021). Equilibrium effects of pay transparency (No. w28903). National Bureau of Economic Research.