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EQUAL SALARY

Equal Pay Laws – do they work?

Dec 6, 2023
Alicja Wejdner

The study contained in this blogpost has been provided by one of our EQUAL-SALARY Ambassador: Alicja Wejdner.

To know more about becoming an EQUAL-SALARY Ambassador yourself, visit our dedicated page.


 

It is clear that addressing unequal pay remains a persistent challenge. Governments, companies, and advocacy organisations have widely acknowledged the social and economic consequences of gender pay inequalities, and initiatives to address them have grown in recent years. Despite that, the gender wage gap, while decreasing in many nations, is a persistent element of almost every labour market.

Recently, the European Council took a significant step towards narrowing the gender pay gap with new rules on pay transparency. This development not only acknowledged the existence of the pay gap but also underscored the fundamental importance of equal pay as a basic human right. And here, Equal Pay Laws (EPLs) take action. These laws encompass various initiatives, including pay transparency, disclosure of the gender pay gap, and shifts in workplace culture. However, the effectiveness of these laws can vary significantly depending on the country in question.

Some European countries have already made strides in implementing to tackle this issue and various academics (cf. references below) already tried to check their effectiveness. For instance, Denmark introduced one of the earliest EPLs in the EU in 2006. It requires companies to report employee pay levels broken down by gender for different job categories. This applies to companies employing over 35 employees (with at least ten men and ten women), giving it a relatively broad scope compared to the assumptions of the future EU directive. It is the company’s responsibility to record, report and collect all data. Reports maintain the anonymity of individuals and are shared only with employees and the Danish Statistics Authority.

Bennedsen and his colleagues studied the effectiveness of this law and observed notable progress after its introduction. The research notably discovered that firms subject to the rule were more likely to employ and promote women. Interestingly, while the law effectively lowered the gender pay gap, it also unintentionally lowered companies’ average employee compensation, a common concern when implementing EPPs. It also had a negative impact on business productivity, but fortunately, it did not substantially affect firm profitability.

In contrast, Sweden’s experience with gender pay audits highlighted their symbolic significance rather than their substantial impact on workplace disparities, according to Salminen-Karlsson and Fogelberg Eriksson. The law requires all employers in the public and private sectors to conduct an annual pay audit in cooperation with employee organisations. Companies with more than ten (!) employees must prepare appropriate documentation outlining pay adjustments and other measures to close the gender pay gap. It must also include an estimate of the costs and a schedule of necessary actions to eliminate inequalities within a maximum of three years. In the Swedish case, the most common criticism concerns creating an obligation without accountability in its application by employers.

Another example is Austria, where the obligation to inform about the wage gap applies to employers with more than 150 employees. The report must include information on the number of working women and men, their positions in the remuneration systems, length of service and average remuneration, which includes basic salary, bonuses and allowances. An analysis of Austria’s Pay Transparency Law by Böheim and Gust led to intriguing outcomes, particularly in larger firms where newly hired women experienced significant wage increases. However, it also revealed unintended consequences, as some organisations reduced their female workforce in response to potential increased expenses.

Studies conducted outside of the EU for the United Kingdom (Blundell, Duchini et al., Jones) and Switzerland (Vaccaro) also showed a reduction in the gender pay gap.

When analysing equal pay laws, it is essential to remember that they have different outcomes depending on the analysed country. Studies highlight that pay transparency laws can identify and address workplace wage gaps, but their success depends on smart law design and implementation.

We should also acknowledge that enterprises and non-governmental organisations often join in efforts to close the wage gap through various actions. Grassroots initiatives are just as crucial as those mandated by the government. Many companies, especially international corporations, have already taken steps to narrow the gender pay gap among their employees. These practices may include, among others, the standardisation of positions, analysis of critical points where the wage gap deepens, and regular payroll audits. Another example is creating certifications such as EQUAL-SALARY for companies or legislative initiatives. Companies around the world have decided to undergo this process, not only in Europe but also in Asia, Africa, the Americas and Australia.

 

Bibliography
  • Aumayr-Pintar, C. (2019). Slow start for gender pay transparency in Germany. Eurofound.
  • Bennedsen, M., Simintzi, E., Tsoutsoura, M., & Wolfenzon, D. (2022). Do firms respond to gender pay gap transparency? National Bureau of Economic Research.
  • Blundell, J. (2021). Wage responses to gender pay gap reporting requirements. CEP Discussion Papers DP 1750.
  • Böheim, R., & Gust, S. (2021). The Austrian Pay Transparency Law and the Gender Wage Gap. Institute of Labor Economics.
  • Connell, E. M., & Mantoan, K. G. (2017). Mind the Gap: Pay Audits, Pay Transparency, and the Public Disclosure of Pay Data. ABA Journal of Labor & Employment Law, 33(1), 1–30
  • Duchini, E., Simion, S., & Turrell, A. (2020). Pay Transparency and Cracks in the Glass Ceiling. CAGE Online Working Paper Series, 482.
  • Jones, M., & Kaya, E. (2022). Organisational Gender Pay Gaps in the UK: What Happened Post-transparency? IZA Discussion Paper No. 15342.
  • Salminen-Karlsson, M., & Fogelberg Eriksson, A. (2021). Decoupling gender equality from gender pay audits in Swedish municipalities. Economic and Industrial Democracy, 0143831X2110208. doi:10.1177/0143831×211020804
  • Swedish National Audit Office. (2019). The Discrimination Act’s equal pay survey requirement – a blunt instrument for reducing the gender pay gap (RiR 2019:16).
  • Vaccaro, G. (2018). Using econometrics to reduce gender discrimination: Evidence from a difference-in-discontinuity design. In 2nd iza workshop: Gender and family economics, New York.

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