Do Firms Respond to Gender Pay Gap Transparency?

We examine the effect of pay transparency on the gender pay gap and firm outcomes. Using a 2006 legislation change in Denmark that requires firms to provide gender-disaggregated wage statistics, detailed employee-employer administrative data, and difference-in-differences and difference-in-discontinuities designs, we find that the law reduces the gender pay gap, primarily by slowing wage growth for male employees. The gender pay gap declines by 2 percentage points, or 13% relative to the prelegislation mean. Despite the reduction of the overall wage bill, the wage transparency mandate does not affect firm profitability, likely because of the offsetting effect of reduced firm productivity.

Automated summary

This study examines the impact of pay transparency on the gender pay gap and firm outcomes. Using a legislative change in Denmark in 2006, which mandated firms to provide gender-disaggregated wage statistics, the research finds that the law reduces the gender pay gap by slowing down wage growth for male employees. Although the overall wage bill decreases, the mandate does not affect firm profitability, potentially due to the offsetting effect of reduced firm productivity.