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Transparency shrinks the gender pay gap, study finds

magnifying glass over roll of money

Government-mandated reporting of gender pay discrepancies is effective in addressing the wage gap, according to a new study featured in Harvard Business Review.

Disclosing disparities in gender pay also has beneficial side effects for both women and businesses, the researchers found. Companies required to report that data increased the number of women they hired, increased the number of female employees they promoted from low-level to more senior-level positions and lowered their overall wage bills, largely by slowing down the growth of men’s wages.

The study 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. Researchers compared the pay data of companies with 35 to 50 employees with identical information from companies with 25 to 34 employees that weren’t required to release that data.

From 2003 to 2008, the gender pay gap at the larger companies shrank 7 percent, while the gap at the smaller companies stayed steady. “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,” the researchers wrote. 

Denmark’s law had a positive impact on the wages of low- and intermediate-level employees, but no significant effect on the pay of senior leaders, the researchers found. Also, low-level female employees in firms that reported their wage data were more likely to be promoted to higher levels after the law passed.

Companies affected by the law also hired 5 percent more women at intermediate and lower levels than the smaller companies, possibly because they were able to attract more women as a result of offering more equal compensation, the researchers said.