When workers know how their pay compares with their colleagues, the difference between what men and women earn gets smaller, according to new economic research.
Pay transparency has long been suspected to help close the stubborn gap between men’s and women’s average earnings, but a relatively new Danish law gave researchers from several business schools, including INSEAD, Columbia University and the University of Copenhagen, the chance to prove it.
In 2007, Denmark required companies with over 35 employees to disclose pay data by gender. The researchers looked at what happened to salaries between 2003 and 2008 — before and after the law took effect. They also analyzed pay at companies that didn’t have to comply with the law.
Women saw bigger wage increases at firms that had to report their pay data. Men at those firms got raises too, but they were smaller. The overall effect was a 7 percent reduction in the gender pay gap, the researchers found.
“For the first time we are able to document, that pay-transparency really works,” INSEAD economics professor Morten Bennedsen wrote in a statement.
Pay discrimination based on gender is illegal in most industrialized countries, but women still earn less, on average, than men do. In an effort to shrink the disparity, countries such as the U.K. and Iceland have compelled companies to report information about what their female employees earn versus their male workers.
In the U.S., where President Donald Trump rescinded an Obama-era pay transparency rule before it took effect, companies that have voluntarily moved toward more transparency often report finding and fixing pay inequalities.
The results of this study, Bennedsen added, raise the bar for policy makers and business leaders. “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,” he wrote.