Pay transparency reduces gender inequalities, study finds

Pay transparency reduces gender inequalities, study finds

It is finally proven by a study of economists: the transparency of wages within companies makes it possible to reduce the pay gaps between men and women. Last November, four researchers published an empirical study on the evolution of wages in Denmark, before and after the entry into force of a 2006 law which calls for the publication of wages, by gender, for companies over 35 employees. Morten Bennedsen (University of Copenhagen and INSEAD), Elena Simintzi (University of North Carolina), Margarita Tsoutsoura (Cornell University) and Daniel Wolfenzon (Columbia University) summarized their study in a Harvard Business Review article published on 23 January.

The study first notes that using transparency to promote equal pay is one of the recurring proposals in recent years. Since April 2018, Great Britain has required companies with more than 250 people to publish their salary statistics. In Germany, employees of companies with more than 200 people have the right to know the median salary of a group of comparable employees. Opponents of this method are still legion because “it lacks practical utility, increases the administrative burden and violates the privacy of employees.”

How it works ?

The study on Danish law covers samples of employees large enough to maintain anonymity. The method used compares these changes over time from 2003 to 2008 and over two groups of companies, those with 35 to 50 and those with 20 to 34 employees, to correct for potential biases. It excludes from the statistics the sectors of activity not concerned by this law, such as farmers or CEO positions, which are somewhat specific, and takes into account the hourly wage as well as bonuses.

Before the entry into force of Danish law, the pay gap between men and women was 18.9%. “Our results show that the pay gap (over this period) for the companies concerned is reduced from 18.9% to 17.5%, while in other companies it remains 18.9%”, specify the authors in the Harvard Business Review. Another direct effect, this measure leads to hiring 5% more women. At the same time, this increases the number of employees promoted from the bottom of the hierarchy to higher positions.

Fun fact, the study also notes that the gap is even smaller in companies where male managers have more daughters than boys: women’s wages then increase by 5% more than in other companies. In addition, the income levels do not have to be known to the general public, but only to members of the company for the measure to be effective.

Perverse effects?

In order to answer the recurring questions from the bosses, the researchers measured the effects of this policy on productivity in the company and on the profits made. There is a downside: transparency leads to lower productivity. “Information on pay gaps lowers the level of satisfaction of employees less well paid than their reference group – women who realize the gap or men less increased in favor of their colleagues – this has an impact negative on their productivity, ”notes the study. Before specifying that once the reductions have been corrected and the feeling of justice installed, productivity should improve. Do not panic however, “this drop in productivity has no significant effects on the profitability of the company”, because the payroll of these companies is 2.8% lower than that of companies that are not. impacted by law. The men have, in fact, obtained fewer increases.

Pay transparency in France, when is it due?

Establishing pay transparency in French companies was one of the proposals defended by the feminist newsletter Les Glorieuses, on November 6, on the occasion of its mobilization day. It was inspired by the Icelandic example: this country made wage inequalities illegal on January 1, 2018 by calling in particular for wage transparency. Its author Rebecca Amsellem also referred to an article in the Wall Street Journal (“Why being transparent about pay is good for business”), which described several good practices “from free speech around wages to full publicity of wages, accessible to all and all ”, but without measuring the effects on a representative sample of companies.

France has not opted for this solution to correct the wage differentials, estimated at around 18% for people on permanent contracts. According to the decree of January 9, 2019, from March 1, 2019, companies with more than 250 employees will have to set up a Gender Equality Index scored out of 100 points. The salary differences are calculated on 40 points out of these 100. Companies will have to communicate the salary differences to staff representatives, even if some are already tackling to share the minimum of information.

On the one hand, this Index should make it possible to know whether a company is rated well or poorly compared to others in terms of professional equality. Thus, according to the lessons of the above study, the most respectful companies should attract more women candidates for employment and promote more women to higher positions. On the other hand, there will not necessarily be total transparency for the employees of a company, so women will not always have access to the figures necessary to compare their income with that of their colleagues at the same level. Will this be enough to encourage companies to review their wage policy?

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