- EU rules will force large employers to publish gender pay data from 2027
- New research suggests headline gaps miss deeper distortions from labour market selection
- Placing pressure on organisations to remove bias in pay structures can help to narrow the gap overall, but research reveals persistent inequality at the top
One of the world’s largest experiments in pay transparency is about to begin.
From 2027, large employers across the EU will be required to disclose detailed data on what they pay men and women, a move policymakers hope will narrow a profound gap that still leaves women earning about €0.88 for every €1 earned by men – even in instances where women are better qualified than their male counterparts.
Whilst some employers may baulk at the idea of paying staff more, there is no shortage of academic data that proves the benefits to be gained by creating more space and opportunity for women in industry, particularly when it comes to leadership.
For example; research has found female CEO’s so be more risk-averse and financially steady, to act more ethically and to be more adept at driving innovation than their male counterparts.
To understand what benefits women can bring in practice, data from the S&P Global study found that within two years of their appointment, female CEOs saw a 20% increase in their organisations’ stock price momentum, and an increase in their profitability.
And yet, despite such a wealth of data championing the cause for levelling the playing field, business can still very much be a man’s world.
So will this new requirement for pay transparency do anything provide greater opportunity – not just greater pay – for women to secure professional success?
Do Quotas Do Enough?
After all, the introduction of gender quotas of boards created a similar effect. Further research from emlyon business school found that organisations that abided by gender quotas for boardrooms were not only more likely to appoint women to major board committees, but also to afford them more influence.
And greater female influence at the c-suite can provide a significant advantage. Paola Profeta, Dean for Diversity, Inclusion and Sustainability and full professor of public economics at Bocconi University, Milan, expresses that more women holding better, more senior and influential roles within companies can help to improve employers’ competitiveness and boost productivity for the company. “Female empowerment,” she notes in a blog post, “is important because women and men are different and the female style of leadership in a traditionally male world can create value starting from innovation.”
Professor Profeta’s work (she also holds the position of Director of the AXA Research Lab on Gender Equality) not only highlights the business case for bringing women into senior positions but also reveals a positive ripple effect in securing a pipeline for future female talent. “Women can change the decision-making agenda, proposing policies that can in turn strengthen female empowerment. In politics, for example, the presence of women in leadership positions is accompanied by greater public spending on childcare services, which in turn are essential for the employment of mothers and the reduction of gender gaps,” she shares.
The introduction of gender quotas in Italy has had an additional benefit, her research shows, by an increase in the level of educational credentials of the individuals who sit on corporate governance bodies, regardless of their gender.
“It’s a simple mechanism to open to open the competition rather than reducing it,” Professor Profeta states, “because now you have candidates that may be men or women. You are forced to consider women for some positions that probably you did not have in mind before. If qualified women replace less qualified men, in the end, the average qualification increases.”
Setting quotas has had a positive effect, so, it’s highly likely that a move to make companies publicly declare their gender pay details will put the pressure on for employers to reduce the gap and bring women’s pay in line with the men working alongside them. But is such a measure enough to fully tackle the wider issue?
The way in which the pay gap is measured, she states, is also in need of reassessment. But how?
Most prior analyses into how much men earn in comparison to women have focused only on female labour force participation and gaps found at the median. However further research into the issue, shows this approach risks missing deeper structural dynamics that shape and reinforce inequality across wage distribution.
The study, conducted by Kenza Elass, a post-doctoral researcher at the Center for Economic Research on Governance, Inequality and Conflict (CERGIC) in Lyon, suggests an alternative approach. Allowing for comparisons between different institutional settings, and work arrangements could help to reveal the bigger picture.
A Shift In Perspective
The findings challenge a long-standing assumption that selection into the labour market (i.e. either choosing to work or being forced not to, due to economic and social factors) is primarily a challenge faced by female workers. It is essential to also account for men’s participation decisions, particularly in the wake of the financial crisis.
It is stereotypical to think that women may earn less due to their educational background, care or welfare responsibilities limiting their output. The Great Recession had huge impacts on labour markets in both Europe and the US, with male-dominated sectors such as finance and construction experiencing substantial and long-term downturns. In countries such as France and the UK, this reshaped who remained in employment and at what rate of pay.
These shifts complicate the interpretation of standard pay gap metrics. Depending on the relative weight of these sectors in a country’s employment structure, selection into the workforce may be more important either at the bottom or the top of the wage distribution.
And, as a result, rather than differences in pay being evenly spread, the gap between gender pay is biggest at the top end of the income scale. In other words, the biggest differences are often among the highest earners. This reflects the pattern often called the “glass ceiling”.
This is consistent with existing evidence. In the UK, for example, men are already earning more than women just a few years after graduation, even when they studied the same subjects. Students make different and gendered choices when entering the world of work and face structural inequality at the same time.
Different countries, different patterns
Elass’ study also highlights how much national policies matter. Countries with more generous support for families or different labour market structures see different outcomes. For example, in some places, highly paid women are more likely to leave demanding jobs, often because of childcare pressures.
These differences make it difficult to apply one-size-fits-all solutions, and the effects of policies vary widely depending on the country.
This variability helps explain why pay transparency has produced mixed results. While the gender pay gap has gradually narrowed in most OECD countries since 2014, evidence on the impact reporting requirements has had on encouraging this reduction is uneven.
In the UK, companies above the threshold (250 employees) for mandatory reporting have reduced their pay gaps more than smaller firms, suggesting that public scrutiny can drive change, consistent with a name-and-shame effect. In some countries, similar policies have had little effect, often because the rules are weaker or the data is not made public.
There are also unintended consequences that harm everyone. In some cases, companies appear to have slowed pay rises for men rather than significantly increasing pay for women. There is still space, then, for a debate about whether reporting reflects progress or actually drives it.
A more nuanced picture
Taken together, the evidence suggests that whilst transparency might help kick some organisations and industries into action, such measures alone will not resolve the greater issue of why gender pay disparities exist. Professor Profeta’s work shows that though the gender wage gap is closing, there are still significant gaps in the detail that need to be addressed.
Persistent gendered wage disparities toward the top, with a substantial glass ceiling to crack needs to be addressed with specific policy. So too does the repercussions for women found in part-time and full-time work. As women are more likely than men to work a part-time job, governments and academics policy should take this into account.
While new EU rules will generate unprecedented data, interpreting that data will require a more sophisticated understanding of labour market dynamics.
Taking a narrowing gap at face value may not result in the progress it appears to portray.
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