Can the Pay Transparency Directive close the gender pay gap?

Summary

The research paper "Can the Pay Transparency Directive close the gender pay gap?" by Alcidi and Ounnas, published in 2022, delves into the potential impact of the proposed European Union Pay Transparency Directive on the long-standing gender pay gap (GPG) within the EU. The authors highlight that despite legal provisions for equal pay, such as those enshrined in Article 157 of the Treaty on the Functioning of the European Union (TFEU), a significant GPG persists, averaging 14% across the EU27 in 2018. This gap has shown limited progress over the past decade and was even anticipated to have widened during the COVID-19 pandemic. The paper posits that pay transparency is a crucial tool in addressing this inequality. It argues that while women have made considerable strides in education, labor market participation, and attitudes, pay differences endure, with new research pointing to within-company dynamics as a significant factor. The proposed Directive aims to strengthen the application of the principle of equal pay for equal work or work of equal value through enhanced pay transparency and enforcement mechanisms. The authors suggest that this directive can positively affect the GPG by influencing within-firm wage dispersion. Specifically, transparency can alter the bargaining dynamics where women historically extract a lower share of surplus in high-wage premium firms. By providing employees with knowledge of existing wage inequalities, the Directive is expected to empower and incentivize women to negotiate for wage increases, and simultaneously compel employers to review and adjust their pay structures. However, the paper also acknowledges that the operationalization of "equal work" and the overall implementation of the directive will present challenges for companies, which could potentially weigh on the perceived benefits.