What Happens to Gender Pay Gaps When They’re Disclosed?
U.S. Supreme Court Justice Louis Brandeis once wrote: “Sunlight is said to be the best of disinfectants.” Turns out, sunlight is pretty good at bringing equality to wages between the genders as well.
That’s the takeaway from new research published by Harvard Business Review, in which researchers Morten Bennedsen, Elena Simintzi, Margarita Tsoutsoura and Daniel Wolfenzon sought to learn whether disclosing disparities in gender pay actually narrows the gender-wage gap.
“Government-mandated reporting of gender-pay discrepancies has been a subject of much debate in the last five to 10 years,” the researchers write. “Those arguing for legislation to require such reporting say that it will help to address the persistent gender-wage gap. Opponents insist that not only is that unlikely, it will also increase companies’ administrative burden and decrease profits. Until recently, there has been no strong evidence to support either side.”
Their research examined wage statistics of Danish companies before and after the introduction of the country’s 2006 Act on Gender-Specific Pay Statistics, which requires companies with more than 35 employees to report on gender-pay gaps. The result, the first empirical study on the impact of mandatory wage transparency, suggest that disclosing disparities in gender pay does in fact narrow the gender-wage gap. It also can:
- increase the number of women being hired, indicating that the supply pool of female employees increases as gender-pay transparency improves;
- increase the number of female employees being promoted from the bottom of the hierarchy to more senior positions; and
- lower companies’ overall wage bills, largely by slowing down the growth of male wages.
The researchers’ results showed that from 2003 to 2008, the gender-pay gap at mandatory reporting firms shrank by 7 percent, from 18.9 percent to 17.5 percent, while the gap at control firms stayed steady at 18.9 percent.
“These findings suggest that governments can indeed take effective steps to address gender-wage disparities by making it mandatory for firms to provide data showing discrepancies in gender pay,” they write.
The researchers also found that wage transparency is not without cost, however. While all employees’ remuneration increased during the period of the study, they found, the wages of men working in mandatory reporting firms increased by less than those in the control group.
Creating a more equitable workplace
The Danish law had other beneficial effects on equity, according to the researchers.
“It had a greater impact on the wages of low- and intermediate-level employees and had no significant effect on the pay performance of managers at the top of the corporate hierarchy,” they write. For example, low-level female employees in firms that reported on their gender-pay gap were also more likely to get promoted to higher levels after the passage of the law.
Furthermore, the researchers found, “mandatory reporting companies hired 5 percent more women in the intermediate- and lower-hierarchy levels than the control firms,” which suggests firms are able to attract more female employees in positions where they offer fairer compensation.
“Our research suggests that governments’ efforts to address these disparities through transparency can be effective,” the researchers write, “and beneficial to firms as well as to their female employees.”