A new paper finds that the U.K.’s 2017 gender pay reporting law has lowered pay inequality and given workers more visibility into gender-based pay imbalances

In Brief: The gender pay gap is one of the most persistent challenges in work settings around the world. In response to a lack of progress on the issue, in 2017 the U.K. mandated gender pay gap reporting for public and private employers. A new study looks at the impact of the law and finds that it has reduced the gender pay gap and increased visibility on gender pay differences for all workers.

Analysis: One of the most persistent challenges across the employment world is the pay gap between men and women. In every developed nation, according to the 2020 World Economic Forum report, “the differential in men’s median income and women’s median income is about 13.5%.” Looking at the trend, “the average wage gap in OECD countries is closing but at a very slow rate.” Indeed, it was 14.5% a decade ago and is now 13.5%, and it has therefore reduced by 1 percentage point in 10 years. This direction, notes the WEF, “is consistent with Executive Opinion Survey trends, which finds that in OECD countries, the wage equality for similar work has increased by approximately 2 percentage points in 10 years.”

The problem is even worse for minority women, notes the U.S. Department of Labor:

Compared with white men with the same education, Black and Latina women with only a bachelor’s degree have the largest gap at 65%, and Black women with advanced degrees earn 70% of what white men with advanced degrees earn. Educational attainment is not enough to close gender earnings gaps. In fact, most women with advanced degrees earn less than white men, on average, with only a bachelor’s degree. 

There are, of course, differing opinions as to why the gender pay gap persists. Some people believe that men and women chose different careers, which accounts for the discrepancies. Others believe that this phenomenon is created by gender discrimination, fewer advancement opportunities for women, and differences in men and women’s relative bargaining power. 

As a result of the lack of progress on these issues, a few nations have implemented laws that force companies to report their gender wage gap. These acts are not without controversy, so it’s important to understand what effect, if any, they have had on the problem. To aid in this task, new research from Stanford’s Jack Blundell examines the impact of a 2017 U.K. law on wages in that market. Though his research looks only at U.K. data, it’s worth noting that the gender pay gap in that market has followed a very close trend to that of the United States. 

Figure 1: Gender pay gaps in the UK and the US (Image Source: Study)

As mentioned above, in 2017 the UK government introduced new reporting requirements designed to tackle the pay gap. The new law mandated that all forms with over 250 employees report several statistics about gender pay every Spring. The law was comprehensive in its reach, covering over 10,000 firms and representing a majority of U.K. workers. Interestingly, smaller employers could also report, note the author, but few chose to do so. 

The new research looked at a random sample of the reported wage gap data from both public and private employers using a tracking system called the Annual Survey of Hours and Earnings (ASHE). “This is the premier source of earnings information,” in the U.K., notes the author, and “the information is considered to be highly accurate.” Unfortunately, the data does not include the self-employed (about 15% of U.K. workers) nor owners/partners, which is unfortunate given their typically high compensation relative to the average employee. Nonetheless, this is a robust data set and a valid foundation for the study’s conclusions. Moreover, to shed further light on the ASHE data, the author collected additional survey date from 2,000 UK workers. “Respondents,” explains the author, “were asked a number of questions on attitudes to work, awareness of the gender pay gap reporting policy and preferences for employers with different pay gaps.”

The study reaches a number of important conclusions. First and foremost, it finds that the introduction of the U.K. law has had a positive effect on the gender pay gap. It notes a 1.6% increase “increase in women’s hourly wages relative to those of men.” This effect, moreover, “was not driven by a reshuffling of highly paid women into affected employers, but rather due to changes in individual workers’ wages.” Tellingly, the effect was primarily the result of companies lowering men’s wages and not raising women’s (emphasis mine). “Relative to the baseline gender gap,” notes the author, “this is a large effect, corresponding to 19% of the total gender gap.”

Figure 2: Ranking of job attributes. A rank of 1 means attribute is most important to respondents when choosing a job. Ordered by average rank in pooled sample. (Image Source: Study)

In its additional analysis of employees’ perception of the gender pay gap issue, the study finds that there is a high degree of awareness of the gap, mostly caused by media reporting about the law. Perhaps not surprisingly, men tend not to have much interest in the issue, but women do. In fact, the study finds that more than half of female employees “are prepared to accept 4.9% lower pay to avoid” the employer with the worst pay gap identified in the survey, which suggests that the average female worker sees a large gender pay gap as indicative of a company’s overall negative view of female workers relative to their male counterparts. This is an important point, notes the author, because when “workers view pay gaps as reflecting differences in an employer’s values or in the ethical stance of managers, workers are more averse to high pay gap employers.” On the other hand, “when workers perceive pay gaps to be due to differences in skills of men and women at employers, they are less sensitive to pay gap information.” Indeed, the results, notes the study:

…demonstrate substantial heterogeneity in the interpretation of pay gap differences. Male workers are more likely to interpret differences as being due to occupations. Female workers are more likely to attribute them to differences in seniority or family-related differences, such as childcare responsibilities. Workers with more education are 12 percentage points more likely to report seniority as a factor, relative to a mean of 33%.

Employers should note carefully, though, that negative perceptions of companies with high wage gaps get worse as female employees get younger, which may indicate that traditional justifications for gender pay imbalances once accepted by female workers might increasingly be discounted. 

Yet another interesting finding is the discrepancy between what workers think their company’s gender pay gap is and the reality. On average, “participants estimate their employer to have a pay gap of 6.7% towards men,” yet the “gender pay gap reports give the average within-firm pay gap as 11.9%.” In other words, “on average, participants believe the pay gap to be between a half and two-thirds of the reported value,” which means that the “difference between mean perceived and actual pay gaps is highly statistically significant.” Of course, this suggests that the reporting has had another beneficial effect, namely, to make clear the real gender pay gap in the U.K., which is much higher than what most employees believe.  

As with any study, there are limitations to this research, from the omission of certain labor and management groups to the lack of analysis of why the gap came down since the law came into force. That said, this paper makes a strong initial argument in favor of gender pay gap reporting, a finding that is supported by research into similar, though far more targeted, efforts in the U.S. and elsewhere. Moreover, this study’s findings will no doubt lend support to those pushing for similar legislation in the U.S. and elsewhere. Indeed, a recent bulletin from HR consultancy Backer McKenzie noted the trend to expand gender pay reporting around the world:

Regulation in this area is expanding across North America, Europe and Latin America. While little regulation currently exists throughout APAC, Australia is a world leader in this area. In the last few months alone, Iceland (already ranked amongst the highest in the world for gender parity) has introduced new legislation requiring employers to certify that they pay employees equally for equal work, the French government has revealed plans to fine companies that do not close unjustified pay equity gaps within three years, Ontario has proposed new pay transparency legislation and Peru has introduced new equal pay legislation.

Some companies have decided to move forward without legislation. Intel, for example, (after reaching a $5 million settlement with the U.S. Department of Labor in 2019 to resolve pay discrimination allegations) announced that it would make its pay gap information public. “The risk of releasing this information is backlash over the data not being where you want it to be,” noted an Intel exec in 2019, but “you must be willing to put yourself out there as a company that can withstand criticism to achieve real progress.”

Employers would do well to note that this issue is gaining momentum. Indeed, in nations that have passed reporting laws, the impetus seems to be to make them more stringent, an outcome that will be more likely if future research finds similar conclusions.

The Research

Blundell, J. Wage responses to gender pay gap reporting requirements. CEP discussion paper. 5 March 2021. Stanford University / CEP (LSE), Paper Number CEPDP1750. Latest version here.

Posted by:Carlos Alvarenga