Welcome

Should You Know How Much Your Colleagues Earn?: Therese Raphael

Nov. 16, 2021, 7:00 AM

Finland already publishes the taxable income of every citizen, an event that creates an annual media frenzy and has led to legal challenges on privacy grounds. But the tax data doesn’t give a complete picture, so now the country’s center-left coalition government wants to take the transparency mandate further in order to close the gender pay gap.

A proposed new law, according a Reuters report, would allow workers who suspect gender-based discrimination to access fuller disclosure so they can challenge any disparity. If adopted, the Finnish experiment will be closely watched by others. Copycats should proceed with caution; often laws that meet narrow goals have unintended consequences.

The question of how to ensure equal pay for equal work has been much debated over the years, the subject of books, academic articles and laws. There are generally two kinds of solutions: those that require public spending decisions and those that seek to eliminate bias through transparency.

In the first basket are systemic fixes, such as higher minimum wages (since women tend to disproportionately occupy low-wage positions), paid sick days or better maternity leave and child-care provisions so that women aren’t disadvantaged in their careers. Since women carry a disproportionate share of the child-care and home-care, even in our more enlightened age, a failure to put support in place often leads to greater disadvantages vis-a-vis male counterparts. Unsurprisingly, these fixes tend to create more equal societies.

Finland already ticks most of the boxes in the first set of fixes. It has some of the most generous parental leave policies anywhere (140 days of paid leave for each parent after a child is born, which reduces the “motherhood penalty,” though women take more leave than men). It was ranked the third most gender-equal country in the world by the World Economic Forum in 2020.

And yet the country counts among the EU’s laggards in the gender pay gap. Women earned over 17% less than men in 2020, putting Finland near the bottom of the list of OECD countries on pay equality. That raises some questions about how important the pay gap really is when it comes to gender equality.

The second type of solution it to remove the veil of secrecy over pay so that workers have bargaining chips and have recourse in cases of discrimination. It’s hard to fight for fair pay when you have no idea what your colleagues are making. It was inadvertent transparency, via the Sony Group Corp. hack, that reportedly prompted Hollywood star Charlize Theron to demand equal pay with her co-star Chris Hemsworth in The Huntsman.

Norway, another country that scores high on gender equality, makes all tax returns public and also has one of the lowest gender wage gaps of any advanced country. That might suggest transparency directives work and yet it is arguably Norway’s first-basket fixes— especially heavily subsidized childcare provisions and support for parents — that are the differentiating factor.

In countries where education and healthcare are taxpayer-funded, a lower average income doesn’t translate into a poor quality of life. In the U.S. which has one of the highest gender pay gaps despite at least four federal laws barring discrimination, the stakes are much higher. With hugely expensive university education and healthcare costs, income levels directly impact on life opportunities and health outcomes. Still, the U.S. has a higher proportion of women in private sector management roles and going into STEM careers than the Nordics.

Of course, the danger of legislative fixes is either that they are either ineffective or so prescriptive that they harm the ability of firms to be flexible and innovative. European Union treaties have long enshrined the principle of equal pay for work of equal value and yet women earn 86 euro cents for every 1 euro earned by men (98 cents for every $1.14) for an average gender pay gap of 14%. That leads to a gender pension gap of 30% since lower earnings mean less savings.

In March, the European Commission introduced a proposed directive that would require firms larger than 250 employees to publicly report their gender pay gap, keep internal tabs on disparities and address any differences of more than 5% not justifiable on gender-neutral grounds. Finland’s proposed law, of course, goes much further.

Price discovery should help remedy disparities rooted in bias in many sectors, such as retail, hospitality and manufacturing. But what about in roles that entail a combination of skills and aren’t so easily captured by metrics? Even in Nordic countries, the gender pay gap is biggest in financial services and insurance. Finland’s law would give women recourse if there was discrimination, but many women are penalized for salary ambition so would it hurt them longer term?

There’s also the question of how a transparency mandate will impact on firm’s ability to motivate and retain staff. It would be an incurious person who didn’t at some point exercise that right to know a colleague’s salary.

Researchers at the University of California once listed the pay of a random subset of university employees on a website and found that workers whose salaries were below the median for their role reported lower job satisfaction and an increased likelihood to look for a new job. Other studies suggest that relative income matters more than absolute income and is linked to job satisfaction, happiness and even health and longevity.

Many factors can go into a remuneration judgment, including experience, productivity, areas of expertise or the person’s contribution to a team dynamic, growth potential or adaptability. Sometimes pay disparities are circumstantial rather than a result of bias and not easy to remedy within budget constraints without losing valued employees.

Saying “it’s complicated” can easily sound like a cop out. Often the gender gap isn’t so much a lack of transparency on pay as the myriad small ways that women are held back over time. Sometimes simple solutions work, but I suspect Finland’s solution will need more studying before others jump on that bandwagon.

To contact the author of this story:
Therese Raphael at traphael4@bloomberg.net

To contact the editor responsible for this story:
Howard Chua-Eoan at hchuaeoan@bloomberg.net

© 2021 Bloomberg L.P. All rights reserved. Used with permission.

To read more articles log in.