Effects of Pay Transparency on Employees, Establishments, and the Gender Pay Gap

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Compensation or pay systems in establishments and firms are a central research topic in the fields of management and economics. In the last years, pay transparency and the effects of pay transparency have received widespread attention. To foster more transparent pay systems in German establishments, the German government has passed the “Gesetz zur Förderung der Entgelttransparenz zwischen Frauen und Männern (Entgelttransparenzgesetz, or EntgTranspG)“. The EntgTranspG was passed on July 6, 2017, and has become effective half a year later, on January 6, 2018. It grants employees in establishments with more than 200 employees the right to ask for the median pay level of a suitable reference group. Regulations like the EntgTranspG are based on the assumption that intransparency leads to pay inequality, spurs pay discrimination, and finally results in a gender pay gap. Although there are a few laboratory studies that have analyzed the effects of pay transparency on employees, there is a surprising dearth of studies that analyze pay transparency effects in the field, and how pay transparency effects establishments and firms, pay systems, pay discrimination, and the gender pay gap. Therefore, the current project aims to contribute to the following questions: What are the effects of pay transparency on employee attitudes and behaviors? What are the effects of pay transparency on the structure of pay systems and the procedures that are used for determining pay and pay levels in establishments and firms? What are the effects of pay transparency on pay discrimination and the gender pay gap?To answer these questions, we aim at employing the implementation of the EntgTranspG for a quasi-experimental study in the field. In this quasi-experimental setting, establishments below the size threshold of 201 employees form the control group, whereas establishments above the threshold are the treatment group. This project has a large managerial, economic, and political relevance, and the potential to significantly contribute to our understanding of pay system functioning and pay transparency in specific.