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August 22, 2022

Can wage transparency alleviate gender sorting in the labor market?

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Gender pay differences have gradually narrowed over the last decades, but substantial gaps remain in today’s labor market. Women often work in occupations, industries, and firms that pay lower wages (are sorted by gender). These differences explain most of the existing male–female wage gap.

There is an ongoing debate among academics and policymakers about the best policy instruments to close this gap. Wage transparency has recently been advocated as a potential solution to narrow existing differences, and many European countries have introduced different forms of pay transparency legislation. These policies should help to detect if men and women are paid differently for the same work. But wage information also makes pay differences between occupations and firms more transparent. If workers are not fully aware of the potential monetary gains from switching to different jobs, increased transparency can help to foster job mobility and further close the gender pay gap.

In a new study, we test this hypothesis and examine the impact of a recent transparency law in Austria, which was introduced in 2011. The law requires firms to indicate a lower bound for wages in job postings, allowing jobseekers to compare the wages of different jobs easily. We use this change to analyze whether wage transparency can increase the share of women in better-paid jobs.

Requiring employers to post wages differs from most other transparency laws. These laws allow workers to acquire information based only on their employer’s pay structure and aggregated by gender. Instead, mandatory wage postings reveal pay differences between advertised jobs in different occupations and at different firms. 

Our analysis is based on vacancy postings administered by the Austrian public employment service, which hosts the largest job board in Austria. Because these data can be linked to administrative records on workers who filled the vacancies, they allow us to study gender differences in labor market outcomes.

Examining workers hired to fill vacancies posted between 2011 and 2013, we observe substantial gender wage gaps. Women work in firms and occupations that offer, on average, about 15% lower wages. To compare vacancies before and after the introduction of the transparency law, we use wage postings to predict prospective pay for every occupation and in every firm. Our analysis shows that increased transparency did not reduce the gender wage gap. None of our estimates suggests that gender sorting changed significantly because of the reform.

Can the absence of transparency effects be explained by the lack of mobility across occupations and firms? To study mobility patterns, we focus on a subsample of workers whose previous jobs are also observed. Our estimates show that occupational switching is common and often entails significant wage changes. Nonetheless, there is no evidence that wage transparency changed these patterns.

The absence of effects suggests that gender differences in other, non-pecuniary preferences might be more relevant in explaining labor market outcomes and the pay gap. Even if increased wage transparency reveals unknown pay differences, potential wage gains may often be too small to justify job switches. Another explanation might be that hiring discrimination limits women’s mobility into higher-paid work. Recent evidence from Austria shows that employers have strong gender preferences, which can prevent women from switching to predominantly male jobs.

© Omar Bamieh and Lennart Ziegler

Omar Bamieh is assistant professor of economics at the University of Vienna, Austria.
Lennart Ziegler is assistant professor of economics at the University of Vienna, Austria, and a Research Affiliate at IZA.

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