Wage transparency works: Tackling the gender pay gap
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Wage transparency works: Tackling the gender pay gap

THE gender pay gap has rightly been in the spotlight over the last couple of years as governments and business attempt to tackle the injustice that is still rife throughout almost every level of employment, across almost every country in the world.

Researchers and economists in Denmark think they may have found the solution. Well, at least part way to a solution.

Back in 2006, Denmark introduced a requirement for employers to publish gender-based wage-statistics for all employees. Twelve years on and the data is showing some interesting results.

After collating the data, Morten Bennedsen, Professor of Economics at INSEAD, found full wage transparency reduces the gender pay gap by seven percent.

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Women are paid less than men for the same work in most labour markets across the world. According to the Asia Development Bank, a woman in developing Asia is paid 77 percent that of her male counterpart, on average.

Europe is not much better with women in the UK earning US$ 79 for every U$100 a man earns. The average across EU countries is US$ 84, according to Eurostat.

The firms analysed by INSEAD paid their male employees an 18.9 percent wage premium before the regulation was introduced.

After the regulation, researchers found the gender pay gap had shrunk to 17.6 percent in the approximately 1,000 Danish firms governed by the 2006-legislation relative to the control firms, that were not required to publish pay statistics.


German Labour Minister Hubertus Heil melts an ice sculpture featuring “21 percent” to set a sign against the salary gap between female and male employees in Germany during a demonstration for the so-called Equal Pay Day in front of Berlin’s Brandenburg gate on March 16, 2018. Source: Tobias Schwarz/AFP

While the news is good, it’s not quite the boon women may be hoping for. Research revealed that the reduction in the gap is not a result of women’s wages going up at a faster rate, but rather men’s wages increasing at a slower rate

“What surprised us the most was the way in which this wage gap closed,” explains Daniel Wolfenzon, Professor of Finance and Economics and chairman of the Finance Division at Columbia Business School.

“Women’s wages did not increase at a faster rate in treatment firms as we were expecting. Instead, we find that men’s wages in treatment firms grew slower relative to men’s wages in control firms.

As a result, the total wage bill grew slower in firms that were required to report wage segregated statistics.”

They also found the reduction in the gender pay gap was bigger in firms that had CEOs and company executives who had more daughters than sons.

It seems some people really do need to have female family members to recognise women as human beings.

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Some unexpected effects of the legislation include more women being hired and promoted. Firms that fell under the law hired four percent more women in the intermediate and lower levels.

More women were promoted from the bottom of the hierarchy to more senior positions after wage transparency, while researchers found no significant change in promotions for male employees.

While seven percent is far short of equality, wage transparency has proven a good start and is one of the more successful measures to show tangible progress in closing the gender pay gap, Bennesden explains.

“We know now that wage-transparency works and it is a measure that can be applied nationally as well as internationally,” he said.

“So from this point, it is really just a question of whether or not the politicians actually wish to do something about the pay-gap between men and women.”