Nudging Away the Gender Pay Gap: The Role of Pay Raise Budget Framing

Abstract

Progress toward eliminating the gender pay gap has slowed in the last two decades. This study examines whether a common control choice – framing pay raise budgets in percentages – inadvertently contributes to perpetuating the gender pay gap. We predict that when the pay raise budget is framed as a percentage (the percentage frame), managers anchor individual raises on that budget percentage. We propose a behavioral nudge by framing the pay raise budget as an absolute amount (the dollar frame), leading managers to anchor individual raises on an even split of the overall budget. We hypothesize and find in an experiment that the dollar frame perpetuates the gender pay gap less than the percentage frame. We also explore a salary frame that, similar to the dollar frame, leads to a reduction in the gender pay gap. Our study offers a simple, cost-effective way to limit the perpetuation of the gender pay gap.

Keywords: gender pay gap, pay raise, pay disparity, compensation, budget, framing, anchoring and adjustment

JEL Classification: D91, J16, J31, J71, M40, M52