Does Pay Transparency Reduce the Gender Pay Gap?

The article examines whether mandatory pay transparency reduces the gender pay gap in large UK firms. Using data from the UK’s Annual Survey of Hours and Earnings (ASHE) from 2013 to 2021, the study assesses firms with 250+ employees required to publish gender equality indicators. Results reveal that pay transparency reduces the gender pay gap by 19%, primarily due to a 2.9% slowdown in men’s pay growth rather than an increase in women’s pay. Public disclosure appears to enhance scrutiny, with firms facing greater public exposure showing the largest reductions in gender pay inequality.

Extended Summary

Central Research Question

This study investigates the impact of mandatory pay transparency on the gender pay gap in the UK, specifically asking: Does pay transparency reduce the gender pay gap in large private sector firms, and if so, through what mechanisms? Since 2018, UK companies with 250 or more employees have been legally required to disclose gender pay data annually, aiming to make gender-based wage disparities publicly visible. This requirement represents a significant shift in policy, creating a unique opportunity to examine whether such transparency measures influence firm-level gender wage disparities and the relative earnings growth of men and women. The researchers explore whether the public availability of gender pay gap information enhances firms' accountability, prompting changes in compensation practices that might reduce the gender pay gap.

Previous Literature

The study builds on a growing body of literature analyzing pay transparency’s effects on wage inequality. Research from various countries has examined transparency’s impact on wage distributions within organizations, with mixed findings. For example, studies on Danish and Austrian pay transparency laws—where information is shared internally rather than publicly—show limited effects on wage outcomes. In contrast, studies from Canada, where university pay data is publicly available, reveal significant wage compression, particularly slowing men's wage growth relative to women’s. Findings from this literature suggest that pay transparency may reduce gender wage disparities but that outcomes vary depending on how widely information is shared and how transparency affects employee behavior and employer practices. This study aims to further our understanding by examining the effects of public pay transparency in the UK, where wage data is accessible to both employees and the broader public.

Data

The primary data source for this research is the UK’s Annual Survey of Hours and Earnings (ASHE), which collects detailed wage, demographic, and employment data for approximately 1% of the UK workforce. ASHE’s comprehensive structure includes information on hourly and weekly earnings, bonuses, employment tenure, occupation, and demographic variables, enabling the researchers to assess the gender pay gap across multiple pay components. The data covers the period from 2013 to 2021, providing a substantial pre- and post-policy time frame. Additionally, the study utilizes supplementary data sources, such as the Business Structure Database, which includes firm-level information on turnover and employment size, and YouGov surveys on company reputation. This multi-source approach allows the researchers to analyze changes in wage patterns, firm responses, and public perceptions in the years following the policy’s implementation.

Methods

To evaluate the policy’s impact on the gender pay gap, the researchers employ a difference-in-differences approach, comparing changes in wage outcomes for firms with just above and just below 250 employees—the threshold for mandatory pay transparency. By analyzing the wage evolution in these "treated" and "control" firms, the study isolates the effect of the pay transparency requirement from other factors influencing wage growth. The analysis focuses on several outcomes: the overall gender pay gap, men’s and women’s individual wage growth, and changes in various pay components such as bonuses and promotions. The researchers also conduct event studies and placebo tests to validate the robustness of their results, confirming that observed effects are specific to the introduction of the policy and not influenced by unrelated time trends or size-specific shocks. Moreover, firm reputation and advertising expenditure are examined as proxies for public scrutiny, assessing whether firms more exposed to public attention respond differently to the transparency mandate.

Findings/Size Effects

The study finds that the UK pay transparency policy reduces the gender pay gap by 19% over the examined period, primarily by slowing men’s wage growth in affected firms. Specifically, the policy led to a 2.9% reduction in the real pay growth rate for men in firms above the 250-employee threshold compared to those just below. Interestingly, the transparency requirement did not significantly impact women’s wages; instead, the reduction in the gender pay gap stems almost entirely from slower wage growth among male employees. This finding aligns with previous studies suggesting that transparency can lead to pay compression, where wage increases for higher-paid groups, often men, are moderated in response to the visibility of pay disparities.

The study further explores the mechanisms behind these effects. Public scrutiny appears to play a critical role in driving firms to address wage disparities. For instance, firms that already had higher advertising expenses—a proxy for public exposure—showed a greater reduction in their gender pay gaps, indicating that reputational concerns may incentivize firms to respond more actively to transparency requirements. In addition, YouGov survey data on firm reputation reveal that companies with larger gender pay gaps experience declines in public rankings, suggesting that public awareness of pay disparities can influence firms' external image. The researchers conclude that while mandatory disclosure increases accountability, it does so by altering wage dynamics for men rather than directly improving pay for women. The policy’s disciplinary effect on firms seems largely driven by external scrutiny, encouraging those in the public eye to address disparities more aggressively.

Conclusion

This study contributes to the ongoing discussion on gender equality policies by demonstrating that public pay transparency can reduce gender pay disparities, albeit through complex mechanisms. In the case of the UK, the reduction in the gender pay gap was driven by a slowdown in men's wage growth rather than an increase in women’s pay. This aligns with findings from other contexts, suggesting that transparency policies often lead to wage compression rather than directly improving wages for underpaid groups. By enhancing public accountability, the UK’s transparency requirement effectively pressures firms to manage their pay structures more equitably.

However, the study also highlights important limitations of transparency policies. While the policy did reduce the pay gap, it did not address the underlying structural factors limiting women’s wage growth, such as occupational segregation, career breaks, or limited access to promotions. Policymakers aiming to improve gender equality might consider additional measures targeting these factors, complementing transparency requirements with initiatives that actively support women’s career advancement.

In conclusion, the findings suggest that while transparency policies are a valuable tool for promoting wage equity, they may need to be paired with broader policy measures to achieve comprehensive gender equality in the workplace. Transparency requirements can reshape wage dynamics by subjecting firms to public scrutiny, thereby encouraging accountability. Yet, addressing gender inequality fully may require interventions that not only expose disparities but also empower women to achieve equitable career outcomes.

Citation

Blundell, Jack, Emma Duchini, Stefania Simion, and Arthur Turrell. "Pay Transparency and Gender Equality." Centre for Economic Performance, London School of Economics, June 2024.