Pay transparency policies can reduce the gender pay gap: The case of Denmark and the United Kingdom

By September, men have already earned the salary that will take women three more months to obtain due to the gender pay gap. Recognizing this, the United Nations declared September 18th International Equal Pay Day, urging the world to address the global gender pay gap. According to the ILO, women earn, on average, just seventy-three cents compared to a dollar earned by men in high-income economies and only forty-four cents per dollar earned by men in low-income economies. This gap has severe consequences for women, including financial instability, reduced retirement savings, and limited access to healthcare, education, and housing.

To reduce the gender wage gap, policymakers must go beyond equal pay legislation. Studies show that higher pay transparency can help decrease the gender pay gap by allowing women to identify unfair pay practices and challenge them. The European Union’s 2023 Directive on Pay Transparency highlights the need for pay transparency and enforcement mechanisms, with evidence suggesting that such mechanisms have already reduced the gender pay gap in countries like Canada, Denmark, Switzerland, the UK and the US .

Despite the importance of pay transparency policies, fewer than 20% of economies have implemented them. Women, Business and the Law data (WBL) finds that while over 50% of economies (98 out of 190) mandate equal remuneration for work of equal value, fewer than 20% of them (35) have pay transparency measures or enforcement mechanisms in place (Figure 1).

Pay transparency mechanisms include mandatory sex-disaggregated pay gap reporting by employers, gender-neutral job classification systems, job advertisements including salary ranges, and equal pay certifications. Enforcement mechanisms include audits, fines, sanctions, legal recourse, and “naming and shaming.”

According to WBL data, economies in all regions except South Asia have implemented pay transparency measures or enforcement mechanisms. For example, Peru requires employers to develop and share a chart with salary ranges per job category to reduce the gender salary gap. Peru's National Superintendence of Labor Inspection may inspect and fine employers for non-compliance.

Denmark and the United Kingdom are particularly notable examples where pay transparency policies have been associated with a decrease in the gender wage gap.
 

Denmark: Pay Gap Reporting, Legal Recourse, and Fines

Denmark’s Equal Pay Act  mandates that companies with at least 35 employees report sex-disaggregated pay data to the national statistics office and employees’ representatives annually. If there are at least ten employees of each gender per occupation classification, the company must list employees per job function, disaggregated by sex, time worked, and pay difference. While this data is not public, employers are mandated to share it with employees. Companies may instead choose to produce their own equal pay report, which must include a description of conditions affecting the remuneration of men and women at the company, an action plan to address pay disparities, and a follow-up plan. Alternatively, employers may opt for a pay audit. Companies that fail to comply with reporting or auditing requirements may face fines. Employees facing pay discrimination can file a claim in court and receive compensation for the salary difference.

Research suggests that Denmark’s pay reporting law has reduced the pay gap by 2 percentage points. Companies just above the 35-employee threshold for reporting tended to hire and promote more female workers than those just below the threshold.
 

The United Kingdom: Gender Pay Gap Reporting and Potential Fines

The United Kingdom’s Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires employers with more than 250 staff to publish gender pay gap and bonus data on their websites and report it to the Government Equalities Office via the online gender pay gap service, accessible to the public. If employers fail to report by deadline, the Equality and Human Rights Commission may send warning notices or conduct investigations. The Commission may also seek court orders and impose unlimited fines on organizations reporting inaccurate data. Failure to meet the reporting deadline results in a “late badge" on the online gender pay gap service.

Due to the 2017 pay gap reporting requirements, the gender pay gap has slightly narrowed in the UK, according to Blundell as well as Duchini, Simion and Turrell. Organizations that continued reporting  during the Covid-19 pandemic demonstrated a 6% smaller gender pay gap compared to those that discontinued reporting. OECD data reveals a decrease in the median gender wage gap from 16.8 in 2016 (the year before the UK enacted the Regulations) to 13.3 in 2023.
 

Looking Ahead

Mandatory pay gap reporting by firms has often been a first step in pay transparency, according to Valerie Frey, a Senior Economist in the OECD’s Directorate for Employment, Labour and Social Affairs. Her report Reporting Gender Pay Gaps: Guidance for Pay Transparency Implementation, Monitoring and Reform takes stock of pay transparency measures across OECD countries and suggests that mandatory reporting, combined with enforcement mechanisms like fines and “naming and shaming” seem to be associated with a reduction in the gender pay gap, as in the case of Denmark and the United Kingdom.

While addressing remuneration disparities is crucial, it is only one piece of the puzzle. Reducing the gender pay gap requires addressing systemic barriers preventing women from accessing the labor market such as inadequate protection of women’s safety, insufficient access to affordable childcare, inflexible working hours, and unequal paternity and maternity leave.

Women, Business and the Law measures an array of barriers, providing policymakers with a comprehensive list of laws and policies to increase women’s labor force participation and economic empowerment.