Do Firms Respond to Gender Pay Gap Transparency?

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