Danish-US research indicates that gender pay gap reporting can help to close the pay differential by encouraging organisations to hire more women and expedite their promotion.
Gender pay transparency does help to close gender pay gaps, according to the first academic study to look systematically at the subject.
The Danish-US study examines whether pay transparency closes the gender pay gap and affects firm outcomes. It exploits a 2006 legislation change in Denmark that requires firms to provide gender dis-aggregated wage statistics. The 2006 Act on Gender Specific Pay Statistics requires companies with more than 35 employees to report on gender pay gaps.
Using detailed employee-employer administrative data the study finds that the law has an effect in reducing the gender pay gap, primarily through slowing the wage growth for male employees. This effect is more pronounced for firms whose managers have more daughters. The researchers says this is presumably due to the effect of daughters on managerial preferences. It is also more pronounced for industries with higher legacy gender pay differentials.
They say the changes in firm wage policies following the passage of the law are associated with negative outcomes on overall firm productivity, but also with a reduction in firm wage bill, resulting in no significant effects on firm profitability.
The authors write: “Reducing the gender pay gap has been at the epicentre of a heated debate among academics and policy makers. Recently, governments around the world proposed transparency as a tool to inspire firms to reduce the wage gap between men and women. Nevertheless, there is no systematic study that examines the effects of increased transparency of within firm gender pay disparities on firm wage policy and outcomes.”
“We argue that firm, industry and managerial characteristics play a non-mutually exclusive role in explaining firms’ response to the increased transparency.”