Explainer: What are pay transparency laws and are they working?

“There is not a single argument why – for the same type of work – a woman should get paid less than a man. Not a single argument, not a single one,” said European Commission President Ursula von der Leyen at the European Trade Union Confederation congress in May 2023.

“It's a basic principle of equality, it’s finally cast into law. Equal work deserves equal pay.”

She was referring to the European Council adopting the Pay Transparency Directive in April, which means countries in the European Union (EU) now have three years to implement the law designed to reduce the gender pay gap at a national level.

On average, women earn 13% less than men per hour in the EU, according to the European Council.

Every year that goes by without equal pay results in an average of $4,639 in lost wages for women in Europe, the European Trade Union Institute reports.

Gender pay gaps persist around the world. In June, the World Economic Forum’s Global Gender Gap Report 2023 found it will take another 169 years to close the global economic gender gap, meaning that, at the current rates of progress, it will take until 2192 for women to earn the same as men and be equally represented on boards and in STEM careers.

Pay transparency is considered a key tool to close wage gaps in many countries, from Japan to the US, but is it really working?

The details vary around the world, but in essence, the legislation requires companies to report on their gender pay gap and include salary ranges in job adverts.

Among the 38 OECD countries, just over half require employers in the private sector to analyze and report gender pay gaps, according to research by two OECD economists. Still, no two countries’ systems of reporting pay are the same.

In the US, around one in five workers is covered by salary transparency laws, including those recently enacted in California and New York, but the legalities vary between states.

Under Californian law, which came into place in 2023, companies with 15 or more employees must list salaries on job postings, while current employees can request a pay range for their position. In addition, companies with more than 100 employees have to submit a pay data report each May.

In 2020, Japan had the worst gender pay gap among the G7 countries, with women’s share of labour income at 28.2%.

From June 2023, companies with more than 301 employees have to report on the female-to-male pay ratio, as well as other metrics including the number of women at board level and the retention rate of workers by gender hired a decade ago.

It’s part of Prime Minister Fumio Kishida’s ‘New Capitalism’ action plan designed to improve economic equality.

It’s too early to say with Japan and parts of Europe, which have yet to adopt them, whether salary reporting laws will help close the gender pay gap, but there are some successes.

In Denmark and the UK, for example, OECD economists Valerie Frey and Lyydia Alajääskö say pay gap reporting requirements “appear to have led to a narrowing of the gender pay gap in affected firms, likely through a slowdown in the growth of men’s wages”.

The new legislation in the US seems to be changing expectations among workers. A survey in the US in April found that 80% of respondents wouldn’t apply for a job that didn’t include salary information in the advert.

But there are also loopholes being exploited. The pay ranges published in job ads have been criticized as being too broad to be useful and there’s no indication of how to achieve the higher end.

Existing staff members have also quit their jobs when they realized they were getting paid much less than similar jobs advertised in their firms, the Financial Times reported in March.

Some experts say pay transparency laws are just part of the solution needed to reduce workplace and pay inequality between men and women.

“Pay transparency often comes too late to solve the gender wage gap. It cannot correct choices and constraints accumulated over the life course,” note the OECD’s Frey and Alajääskö.

The so-called ‘motherhood penalty’ – when women leave the workforce to have children and subsequently experience discrimination – accounts for much of the gender pay gap, according to campaigner Joeli Brearley.

Women are more represented in specific careers, with women in Europe making up almost three-quarters of the education, health and social work jobs, which tend to be lower paid. At the same time, men hold the majority of management roles.

But closing the gender pay gap could boost GDP in developed and emerging countries by as much as 10% and 13% respectively, according to research by Goldman Sachs.

The Forum is working with governments across the globe to set up a network of 14 Gender Parity Accelerators to tackle structural issues such as access to quality and affordable childcare, social safety nets, flexible work arrangements and discriminatory social norms.

They also promote pay transparency, enhance work quality and pay standards, set targets for women in leadership, and create workforce diagnostics and reskilling and upskilling initiatives to boost women's employment in high-growth sectors.