Do Firms Respond to Gender Pay Gap Transparency?

Abstract

We examine the effect of pay transparency on gender pay gap and firm outcomes. This paper exploits a 2006 legislation change in Denmark that requires firms to provide gender disaggregated wage statistics. Using detailed employee-employer administrative data and a difference-in-differences and difference-in-discontinuities designs, we find the law reduces the gender pay gap, primarily by slowing the wage growth for male employees. The gender pay gap declines by approximately two percentage points, or a 13% reduction relative to the pre-legislation 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.