The Role of Firms in the Gender Wage Gap in Germany

6. Policy implications: Combatting the gender wage gap

Germany has a lot to gain from achieving a better balance in wages between men and women, particularly if this involves increased wages for women. Higher wages for women can contribute to more balanced labour market participation, improve families’ finances, generate higher national income and foster new innovative ideas (OECD, 2021[53]). A smaller pay gap, especially if it means more equal wage contributions within families, could also lead to further social benefits, including lower health inequalities and rates of partner violence (OECD, 2021[54]).

Going forward, Germany should keep up progress to achieve equal pay for work of equal value by men and women. The wage gap in Germany has decreased roughly at the same pace as that across OECD countries (OECD, 2021[55]) and without faster improvements, the country is unlikely to catch up with leading countries in the field, such as Sweden. Germany should consider strengthening the policy package that is needed to ensure that this gap continues to narrow, focusing especially on gender mainstreaming in education and training, public policy to cushion the arrival of children and gender-sensitive labour market policies.

6.1. Continue to support gender mainstreaming in education

Gender imbalances in educational pathways form and reinforce differences in specialisation that later in life mean than men and women tend to work in different sectors that are associated with different wage premia. Although young women in OECD countries on average are more likely than young men to obtain higher educational attainment, women are still overrepresented in lower-paid sectors like health, education and welfare whereas men are more likely to work in higher-paid sectors such as science, engineering and ICT (OECD, 2021[5]). Taking a long-term perspective on gender wage gaps, education policy today can help men and women spread more evenly across the labour market in future. Two potentially useful measures to take are to continue the long-term work to balance education paths and provide short courses for returnees from career breaks (Doerr, 2022[56]; Icardi, 2021[57]).

6.1.1. A greater gender balance in education paths

Interventions to achieve a greater gender balance in education paths should start in early childhood, before clear gender norms have formed. Educational choices for the most part are related to attitudes rather than aptitude (OECD, 2015[6]). Indeed, according to the OECD’s PISA results, girls outperform boys in reading (by 26 points) and science (by 1 point) in Germany, but boys outperform girls in maths (by 7 points) (OECD, 2019[58]). These differences sharpen in later life as students specialise. The majority of German students who graduated in a STEM subject in 2019 was male (82%) whereas men made up only a minority among graduates in education (19%), health and welfare (22%). These differences in Germany are roughly in line with OECD-wide averages.

Parental expectations may in part explain these differences in specialisations. Breda et al. (2020[59]) consider whether mathematics is viewed by parents as a more appropriate educational and career choice for their sons than for their daughters. The authors consider the difference in the share of boys and girls who report in the OECD PISA survey that “[their] parents believe that math is important for [their] career”, correcting for their math performance. In Germany, the gap between boys and girls is 0.31, compared to the smaller gap of 0.19 OECD-wide (Figure 6.1).

Figure 6.1. Thinking that boys need maths more than girls is comparatively common in Germany

Note: Data for Portugal and the Republic of Türkiye are not statistically significant. OECD is the simple cross-country average. Regressions are done country by country, and systematically include a variable accounting for math performance whose estimated effect is given in Table S1. All variables are standardised to have a weighted mean equal to 0 and a weighted standard deviation equal to 1 in each country. Estimates and standard errors involving measures of ability are based on plausible values and account for measurement error in these abilities on top of standard sampling error. See section “Country-Level Variables Computed from PISA Items” of this SI for more details.

Source: Table S2 in: Breda et al. (2020). Gender Stereotypes Can Explain the Gender-Equality Paradox, IZA Discussion Papers. URL: https://docs.iza.org/dp13904.pdf.

Aged 15, girls and boys in Germany have rather similar expectations of the sectors they will work in when they are older, compared with other OECD countries (Figure 6.2). Career expectations in teenage years are an important predictor of future adult jobs and earnings potentials (Mann et al., 2020[60]; Phair, 2021[61]), and a valuable indicator on the norms and plans of the latest cohort of young people. In Germany, just 6 percentage points more boys than girls expect to work in the typically male‑dominated fields of science and engineering professionals and ICT professionals whereas the gap is 8 percentage points and 7 percentage points, respectively, across the OECD. Germany has performed even better when it comes to expectations to work in the health sector, with only 9 percentage points fewer boys than girls expecting to work in this sector, compared to 15 percentage points across the OECD.

Figure 6.2. Expected career sectors are relatively similar between girls and boys in Germany

Note: * The Netherlands, Portugal and the United States: Data did not meet the PISA technical standards but were accepted as largely comparable.

Source: PISA Results 2018, table II.B1.8.19.

Changing social norms that affect educational choices takes time and Germany should continue to build on its long-term efforts to balance gender imbalances in education, including the National Pact for Women in STEM. Between 2008 and 2021, the Federal Ministry of Education and Research funded changing projects in the funding line “Success with STEM – New Opportunities for Women” (Komm mach MINT, 2021[62]). While the funding stream of the programme has ended, the dedicated website “Come, do STEM” (“Komm mach MINT”) remains active. It will continue to help bring together information about STEM careers and opportunities to encourage more young women to take scientific and technical paths in education. (Komm mach MINT, 2021[62]). It is encouraging that the newly founded MINT Networking Office Germany (MINTvernetzt), set up by a network of actors (including the Körber Foundation, the Stifterverband, matrix GmbH, the University of Regensburg and the National MINT Forum) will continue to promote similar work. The aim of the new Networking Office remains to contribute to successful STEM education in Germany and place a special emphasis on the promotion of girls and women in STEM professions (Mintverbund, 2022[63]).

6.2. Use public policy to cushion the uneven impacts of the arrival of children

Gender-sensitive public policies can be used to cushion the impact on the gender wage gap of the arrival of children that is illustrated by the analysis in this report. A key analytical insight is that the wage gap between similarly skilled men and women in Germany and beyond to a large extent arises because women are more likely to be responsible for lower-paid tasks within firms than men. These wage gaps also rise around the time children arrive in families, which is typically associated with a specialisation in tasks in families in Germany. The motherhood wage penalty reflects the unequal sharing of household responsibilities between parents, whereby women take on more unpaid work than men and correspondingly draw down hours spent in paid work. This unequal sharing of paid and unpaid work highlights the importance of gender-sensitive family policies that support families until children are independent during the working day, including parental leave, Early Childhood Education and Care (ECEC) and Out-of-School-Hours (OSH) services.

6.2.1. Continue policy reform to encourage more equal uptake of parental leave

Overall, more women than men make use parental leave allowances across the OECD, and Germany is no exception. Splitting parental leave more equally between partners can have the effect of setting a precedent for more equal sharing unpaid work in the household for an extended period of time when children are young. This allows more parents, and especially mothers, to return to work and to full-time work quicker after child-related career breaks. If more women and men share responsibilities for paid and unpaid work more equally while children are young, similarly skilled mothers and fathers are more likely to see similar wage developments in their 30s and 40s, which in turn will contribute to narrowing gaps in wages.

Keep monitoring outcomes from upcoming efforts to balance parental leave use

Germany’s generous and flexible parental allowances support long absences from the labour market and long periods of part-time work as children grow older, but households do not yet achieve a gender balance in uptake of allowances. Maternity leave lasts for 14 weeks and is paid at a 100% earnings-replacement rate. The coalition agreement complemented this by announcing the plan to introduce 2 weeks of paternity leave paid at 100% and immediately following the birth of a child (in line with EU legislation, see European Parliament (2019[64]). Maternity and paternity leave are combined with employment-protected leave and financially supported by two kinds of Parental Allowance (Basiselterngeld and ElterngeldPlus). The basic Parental Allowance is paid at 65% of the difference in earnings before and after the arrival of a child (capped at EUR 1 800 per month) and provided for 12 months whereas the alternative Parental Allowance Plus can be paid for twice as long, while capped at half the rate (Federal Ministry for Family Affairs, 2019[13]). Although increasing shares of fathers take some leave, there are still wide gender gaps in the uptake of leave allowances.

The Parental Allowance has an element of non-transferability that is helpful to encourage more fathers to take up parental leave. Since 2007, the Parental Allowance can be extended by two bonus months if both parents take leave, which effectively establishes two months of non-transferable paid leave. Following this change, German fathers almost doubled their uptake of parental leave entitlements; by 2018, 40 fathers for every 100 live births were taking some leave (Destatis, 2021[11]).

There are already further policy developments on the horizon in this area in that the partner extension to Parental Allowance will be increased from two months to three months under the new coalition government (Die Bundesregierung, 2021[12]). Germany is not alone in incorporating non-transferability elements of around three months. For instance, in Sweden each parent receives 195 days of parental allowance per child (followed by 45 days at a lower replacement rate). Each parent can transfer some of their days to the other, but must retain 90 days for themselves (European Commission, 2021[65]). An increasing, albeit still small, share of couples balance their parental leave equally: one‑fifth (19.3%) of parents to children born in 2018 split their allowance days equally (40/60 split), doubling from one‑tenth (9.5%) of parents to children born in 2005 (SCB, 2021[66]). In Germany, the planned increase in non-transferable months is encouraging but it remains to be seen whether the move will affect the sharing of parental leave between men and women, in particular in terms of the length of leave taken by each parent.

Achieve a more balanced use of extended parental leave combined with part-time work

Germany’s flexible Parental Allowance Plus scheme allows for extended periods of parental leave when combined with some earnings from paid work after the child is born, but since mothers make up the large majority of Parental Allowance beneficiaries this flexibility may actually contribute to sustaining the motherhood wage penalty. Germany has incorporated flexibilities within its Parental Allowance Plus scheme that allow parents to take twice as long a parental leave when combining parental leave allowance with earnings from some part-time work (as long as the earnings after the child is born are lower than earnings received prior to having the child) (Federal Ministry for Family Affairs, 2019[13]). This means that rather than 12 months of full-time leave per child, parents can take up to 24 months of parental leave on a part-time basis when they are receiving some part-time earnings (excluding bonus months). More could be done to encourage mothers and fathers to evenly share the increased burden of unpaid work associated with raising children (OECD, 2017[3]). A priority should be to make Parental Allowance Plus more gender sensitive by encouraging a more even gender split in uptake. To this end, Parental Allowance Plus could be reformed to allow for a higher wage replacement, but for a shorter period of time. The higher wage replacement would financially enable primary earners to take up the support without forgoing as much income. The shorter period, and any additional take‑up by fathers, would also help to enable mothers to increase their working hours sooner after the arrival of children and ensure that neither mothers nor fathers end up on the back foot in their workplaces.

Germany has already taken some policy measures to smooth the transition from part-time work to full-time work. The “bridging part-time legislation” offers the guarantee to return to full-time work after a given period of time and therefore makes it a more predictable form of employment (see Federal Ministry for Family Affairs (2020[14])). The new coalition government aims to simplify the administration process for take‑up, but the implementation of this and any potential effects remain to be seen (Die Bundesregierung, 2021[12]).

Transitioning from parental leave to the labour market could also be facilitated by improving the offer of training schemes and career advice. Having spent one or more years out of the labour market, it can be daunting to return if the mode of work and the topics of interest have changed. Short-term courses can help bring parents up to speed to assist them in endeavours to change careers (Box 6.1).

Box 6.1. Provide upskilling and reskilling courses for those returning from parental leave

Lifelong learning provisions can help encourage adults to keep up learning as and when it could benefit them, especially by ensuring that parents returning from parental leave have the reskilling and upskilling opportunities to work in high-paying and growing sectors. Short training courses can build on existing knowledge to help returnees into STEM and other high-paying sectors and sectors with skills needs. They could also help encourage career progression among returnees by equipping them with any qualifications necessary to take on managerial positions (OECD, 2019[67]; OECD, 2020[68]).

Germany has previously run programmes that support training needs and career advice. Between 2009 and 2021, the federal programme “Perspective Re‑entry”, funded through the European Social Fund 2007‑20 programming period, supported primarily women to return to work after child-related career breaks. It was run jointly by the Federal Ministry for Family Affairs, Senior Citizens, Women and Youth in co‑operation with the Federal Employment Agency (Federal Ministry for Family Affairs, 2021[69]). Around 17 000 participants have benefited from the programme and almost 65% of those returned to or were activated for the labour market (Federal Ministry for Family Affairs, 2021[69]). The ESF Plus programming period 2021‑27, currently taking funding proposals, is a funding opportunity to renew efforts to continue a similar programme, building on successes from previous years (Katharina Diener, 2015[70]).

Any such programme should be part of a broader and more systematic approach to career guidance, skills validation and partial qualifications that simplifies the process of taking part in lifelong learning (OECD, 2021[71]). It is therefore encouraging that the new coalition government pledges to focus on the recognition of informal training and competences and to close any funding gaps that exist in the system (Die Bundesregierung, 2021[12]).

Going further, there could be more of a coherent strategy for training guidance. Although many federal states already have specific guidance offers for women, it is not yet done on a nation-wide scale (OECD, 2021[71]). The German lifelong learning landscape is currently complex and fragmented, which makes it challenging for “mother and father returners” who are considering upskilling or reskilling for higher paid roles to know which occupations to train for, understand what training is available to develop the relevant qualifications for those roles, and access any available funding to be able to undertake the training. Coming out of training, it can also often be difficult to have existing skills recognised towards their new desired occupation (OECD, 2021[71]).

A complementary approach is to use lifelong learning provisions to encourage adults to keep up learning as and when it could benefit them, especially by ensuring that parents returning from parental leave have the reskilling and upskilling opportunities to work in high-paying and growing sectors. Short training courses can build on existing knowledge to help returnees into STEM and other high-paying sectors and sectors with skills needs. They could also help encourage career progression among returnees by equipping them with any qualifications necessary to take on managerial positions (OECD, 2019[67]; OECD, 2020[68]).

6.2.2. Maintain progress on provision of ECEC services for the youngest children

While families enrol most of their older pre‑school age children in ECEC services, children under the age of three are least likely to use these services. If parents are to commit to paid work after parental leave, they need to be supported by high-quality, extended-hours ECEC. It is therefore encouraging that almost all 3‑5 year‑olds (94%) were enrolled in some type of service in 2018. This can be compared to the lower figure of 87% OECD-wide (Figure 6.3). However, the proportion attending ECEC is lower for younger children. Only 38% of 0‑2 year‑olds in Germany were enrolled in ECEC in 2018. This is similar to the OECD average (36%) but significantly lower than leading countries like the Netherlands (66%), Korea (63%) and Luxembourg (60%) (Figure 6.3). Although the proportion of young children enrolled in childcare was still lagging behind OECD averages in 2018, the country has made significant strides since 2005 when only 17% of 0‑2 year‑olds were attending ECEC services (Figure 6.3).

Although the proportion of 0‑ to 2‑year‑old children attending childcare services is broadly in line with the average across the OECD, far from all children spend their full day in ECEC. In Germany, children spend on average 32.2 hours per week in ECEC, which is shorter than in countries such as Latvia, Portugal and Iceland where children spend more than 38 hours per week on average (Figure 6.4). There are also considerable regional differences whereby more children in the eastern part of Germany are enrolled in full-day ECEC (Destatis, 2022[72]).

Figure 6.3. Enrolment has increased for the youngest in Germany, but is still lagging somewhat

Note: Data points for 2005 have been excluded for countries with missing data. For 0‑2 year‑olds, data generally include children enrolled in early childhood education services (ISCED 2011 level 0) and other registered ECEC services (ECEC services outside the scope of ISCED 0, because they are not in adherence with all ISCED‑2011 criteria). Data for Denmark, Finland and Spain, refer to 2018 and includes only early childhood education and care (ISCED 0). For 3‑5 year‑olds data refers to 2018, except for Greece, New Zealand, and Poland where they refer to 2017. Data include children enrolled in early childhood education and care (ISCED 2011 level 0) and primary education (ISCED 2011 Level 1). For Greece, data include only part of the children enrolled in early childhood development programmes (ISCED 01). Potential mismatches between the enrolment data and the coverage of the population data (in terms of geographic coverage and/or the reference dates used) may affect enrolment rates. For details on the ISCED 2011 level 0 criteria and how services are mapped and classified, see OECD Education at a Glance 2020 Indicator B2 (http://www.oecd.org/education/education-at-a-glance-19991487.htm).

Source: For Belgium, the Czech Republic, France, Greece, Hungary, Ireland, Italy, Latvia, Luxembourg, the Netherlands, Poland, the Slovak Republic and the United Kingdom (2018) OECD estimates based on EU-SILC. For all other countries, OECD Education at a Glance 2020: OECD Indicators.

Figure 6.4. Not all children enrolled in ECEC spend their full days there

Note: Data for New Zealand refer to 2014, for Hungary to 2017, and for the Czech Republic, Iceland and the United Kingdom to 2018. Data are OECD estimates based on information from EU-SILC. Data refer to children using centre‑based services (e.g. nurseries or day care centres and pre‑schools, both public and private), organised family day care, and care services provided by (paid) professional childminders, regardless of whether or not the service is registered or ISCED-recognised. For some countries and in some years, sample sizes can be small. Estimates based on fewer than 50 cases have been removed. For New Zealand, data cover children using licensed centre‑based (e.g. ‘Education and Care’ services, Playcentres, Kõhanga Reo, Kindergartens) and home‑based services, only. All non-licensed care is excluded regardless of whether it is paid or unpaid. Data on average hours of attendance refer to a mix of the actual hours attended by enrolled children scheduled to attend during a specific reference week and the actual hours of attendance by children who actually attended during a specific reference week.

Source: For New Zealand, OECD questionnaire. For all other countries, OECD estimates based on EU-SILC.

Capacity rather than affordability continues to be an issue. Broadly in parallel with parental leave reform, German family policy has moved in the direction to provide an effective system of continuous support to families in terms of a comprehensive ECEC system since the mid‑2000s. It is helpful that centre‑based net childcare costs for German parents are the lowest across the OECD only after Italy Figure 6.5. However, a growing gap between demand and supply in early childhood education and care spaces will hamper the ability of both parents to return to full-time employment after the period of parental leave. It appears that the growing supply of childcare places for under‑3‑year‑olds has not kept up with increased demand over the past 5 years (Geis-Thöne, 2020[17]; OECD, 2017[3]).

Figure 6.5. Net childcare costs in Germany are among the lowest in the OECD

Note: Data refers to 2021 for Australia, Canada, Israel, Korea, Switzerland, Türkiye, and to 2018 for New Zealand. Net childcare costs refer to costs after childcare benefits, tax credits and other benefits.

Source: OECD Net childcare costs for parents using childcare facilities, https://stats.oecd.org/Index.aspx?DataSetCode=NCC.

It is important that Germany continues its work to increase provision in line with demand so that parents are able to return to full-time work as soon as they wish to. There is an opportunity for Germany to do more to increase the supply of childcare places in areas where they are most needed (see for instance OECD (2017[3])). As a secondary benefit, expanding provision to more children would also present an opportunity to recruit more men into the childcare and education sector (OECD, 2019[18]).

6.2.3. Extend the option of out-of-school-hours services to all school-age children

The ability of parents to sustain family life with two full-time working adults depends on reliable out-of-school-hours (OSH) services that provide care for children on hours not covered by the school curriculum, but relatively few children use these services in Germany (Figure 6.6). Smooth and affordable OSH service provision becomes even more important in countries where the school day is short. In Germany, the school day for young children typically only covers the morning and children are often expected to eat lunch at home. In the absence of OSH services, these short days require more unpaid work from parents compared to countries with longer school days where children eat in school. It is therefore especially concerning that OSH provision is lagging behind OECD averages in Germany: only 21% of 6‑ to 11‑year‑olds in Germany attended centre‑based OSH services in 2019, compared to 31% in OECD. This figure is considerably below the attendance in leading countries like Denmark (66%), Sweden (62%) and Slovenia (61%) (Figure 6.6). The short school days are reflected in the finding that children who do use OSH services tend to stay for more hours per week in Germany compared to the rest of the OECD (Figure 6.7).

Figure 6.6. Enrolment in German OSH-services is below the OECD average

Notes: Data for Iceland and the United Kingdom refer to 2018. Data generally reflect the proportion of children who use centre‑based out-of-school-hours services for at least one hour during a usual week, cover the use of services offered before and/or after school hours only, and do not cover ‘school-going’ children who use centre‑based services only during school holidays or only on days when schools are closed. Exact definitions differ across countries.

Source: For all countries, EU SILC.

Figure 6.7. Children who do use OSH-services stay for longer than average in the OECD

Note: Data for Hungary, Iceland and the United Kingdom refer to 2018. Data cover children who use centre‑based out-of-school-hours care services for at least one hour during a usual week. Data cover the use of services offered before and/or after school hours only, and do not cover “school-going” children who use centre‑based care services only during school holidays or only on days when schools are closed.

Source: For all countries, EU SILC.

6.2.4. Strengthen financial incentives for second earners in couple family to increase working hours

Although the wage gap between similarly skilled men and women increases rapidly around the age when children arrive, considerable wage gaps remain into later working lives. These are linked with significant gaps in hours worked between similarly skilled men and women that grow around the age families have children and remain large through to older ages (as opposed to slight recoveries observed in countries like Denmark).

There are elements in the Tax-Benefit system in Germany that support a “one‑and-a-half-earner model” of family income. The system means that the financial incentives to work more hours are greater for the higher-earning partner than the lower-earning partner. Married couples and civil partners can file their taxes together, with joint liability for the aggregated income of the couple (“Ehegattensplitting”). The result is that the couple can jointly be taxed at a lower marginal rate than they would have been if the higher-earner partner had filed taxes on their own (due to progressive tax schedules). If there are large differences in earnings, joint liability reduces the overall tax payment but increases the marginal tax rate for the lower-earning partner (Bachmann, Jäger and Jessen, 2021[19]).

The joint taxation of income with spousal splitting leads to a significantly higher burden for second earners compared to individual taxation. When labour income of couples is sufficiently different between the spouses, the tax filing system that optimises household income allocates the basic tax-free allowance for which no income tax has to be paid to the higher earner. While this yields an overall tax burden that is lowest for the household, the spouse with lower earnings faces a disproportionate share of the tax burden. This is the case because the spouse with lower earnings pays income tax on even low earnings and reaches higher tax bracket thresholds earlier, leading to higher marginal and effective tax rates for the second earner. To illustrate this point, for a taxable income of EUR 45 000 per year, which after standard deductions corresponds to the average income of (male) full-time employees in 2020 (Statistisches Bundesamt, 2021[73]), the first earner pays a marginal tax rate of just over 27% and an average tax rate of just under 13% on their taxable income. For the second earner in this couple, starting at a taxable income of EUR 8 000, the marginal and average tax burden rises steeply. With an annual gross wage of EUR 20 000 to 35 000, which corresponds to the range of most second-earners, the marginal tax rate is consistently 42%, while the average tax rate is between 20% and 30% (Bach, Haan and Wrohlich, 2022[74]). This has been identified as an important reason for the relatively low volume of work of married women in Germany (Blömer, Brandt and Peichl, 2021[75]).

While the Tax-Benefit system does not explicitly target women as second earners, female working spouses are disproportionately considered as such. Since female spouses’ earnings tend to be lower than their male counterparts’, many families face lower incentives to plan for wives working full-time work (OECD, 2017[3]). There are several reasons for this. First, age gaps in relationships often mean that female spouses have been working for a shorter period of time than their partners and therefore tend to be the lower-earning spouse (Schmidt and Stettes, 2021[76]; OECD, 2017[3]). Second, women are still allocated the heaviest burden of unpaid work in the household (OECD, 2021[77]). Third, cultural beliefs that men and women should engage in separate spheres according to a traditional breadwinner-homemaker model are still prevalent (albeit waning) in Germany, and especially in western Germany (Grunow, Begall and Buchler, 2018[50]).

The new government has announced plans to reform the joint taxation system, but effects are yet to materialise. The coalition agreement spells out the intention to remove the current option of being able to transfer the basic tax-free allowance between spouses to avoid these negative consequences for second earners (SPD, BÜNDNIS 90/DIE GRÜNEN and FDP, 2021[78]). The new proposal would still offer benefits for married couples, but distributes them equally with a factor that is calculated based on the share of the income provided by each partner. This will increase the marginal tax rate for main earners and reduce it for second earners. This reform would increase incentives for second earners – mainly women – to enter the labour market or increase their hours. Modelling of these reforms has pointed out that this is a step in the right direction, but that for incentives to be strengthened further, the splitting model has to be reformed (Bach, Haan and Wrohlich, 2022[74]). It remains to be seen whether these reforms will be sufficient to increase female hours in paid work. To further limit the impact of joint family taxation, Germany could introduce a tax-free allowance unique to second earners and consider reforms to the co‑insurance system for spouses of workers (see OECD (2017[3]).

6.3. Ensure gender-sensitive labour market policies with firms at the centre

Gender-sensitive labour market policies centred on the role of firms can play a crucial role for continued work toward narrowing the gender wage gap. Labour market policies with direct influence over the gender wage gap include pay transparency and reporting measures, quotas and soft measures on staffing, gender-sensitive collective bargaining agreements and adequate minimum wages.

6.3.1. Use pay transparency and reporting to share firm-based information

Pay transparency measures have recently gained momentum in policy packages across OECD countries with the aim of reducing persistent gender wage gaps and more specifically raise awareness about systematic pay differences within firms. Most of these policies were introduced in the past decade, and most of this movement took place in Europe, reflecting the 2014 European Commission Recommendation on strengthening the principle of equal pay between men and women through transparency. There are different types of pay transparency measures that could potentially contribute to narrowing gender pay gaps. Of the countries considered in this report, job classification systems are commonly used, although not mandated, in the Netherlands; non-pay reporting of gender-disaggregated information is used in Germany; regular gender pay reporting, without audit is used in Denmark; and regular pay gap reporting with Audits included are used in France and Sweden. Since these instruments have been introduced relatively recently only little is known about their effectiveness and best practice.

Job classification systems is a tool to rank each job within an organisation against objective criteria that relate to observable characteristics of a role, including required skills, effort, responsibilities, working conditions, education and difficulty. It is a systematic and consistent way to determine pay structures and thereby understand individual pay outcomes, and is therefore a foundation for more detailed pay transparency policies. Just under half of OECD countries use job classification systems in the public and/or private sector, and ten countries mandate that job classification systems, when they are used, be gender-neutral (OECD, 2021[23]). This is an attempt to correct for gender biases in job valuations that can exacerbate pay disparities. Gender-neutral job classification systems are often embedded in more detailed equal pay auditing processes, suggesting they may become more widespread if auditing becomes more common.

Half of the OECD countries mandate systematic, regular gender pay gap reporting by private sector firms (OECD, 2021[23]). This can entail calculating and reporting a range of different wage gap statistics, including the simple average or median wage gap. These results would subsequently be shared with stakeholders such as workers, their representatives, a government agency, and the public, typically every one or two years. Reporting requirements are typically determined by company size. Mandatory reporting is most common for medium to large companies with 30‑50 employees or more. Penalties for non-reporting include restrictions on government tenders, publicly publishing individual firms’ publishing history, and the possibility of fines – as is done in for instance France, Denmark and Sweden – but many countries do not closely monitor compliance (OECD, 2021[23]; Ceballos, Masselot and Watt, 2021[21]).

Nine OECD countries have implemented comprehensive equal pay auditing processes (Figure 6.8). Equal pay audits require additional gender data analysis and typically propose follow-up strategies to address inequalities. Audits typically require an analysis of the proportion of women and men in different positions, an analysis of the job evaluation and classification system used, and detailed information on pay and pay differentials based on gender.

Figure 6.8. Half of the OECD countries mandate systematic, regular gender page gap reporting by private sector firms

Note: The figure shows the distribution of pay reporting measures across OECD countries. Ten countries in which companies meeting defined criteria (e.g. firm size) are required to carry out regular gender pay audits and report disaggregated pay gaps include: Canada, Finland, France, Iceland, Ireland, Norway, Portugal, Spain, Switzerland, and Sweden. Nine countries in which companies meeting defined criteria are required regularly to report gender-disaggregated pay information without a broader audit are Austria, Australia, Belgium, Chile (the financial sector), Denmark, Israel, Italy, Lithuania and the United Kingdom. Countries in which all companies meeting defined criteria are required to report gender-disaggregated data on workforce characteristics but not gender pay gap data are Germany, Japan, Korea, Luxembourg and the United States. Countries in which an ad hoc selection of companies are required to undergo gender pay audits, including as a targeted labour inspection (Costa Rica, Greece, Republic of Türkiye). The remaining OECD countries have no equal pay reporting or auditing system in place.

Source: OECD Gender Pay Transparency Questionnaire (OECD GPTQ 2021).

Build further knowledge of how to maximise the effectiveness of pay transparency policies

Since these instruments have been introduced relatively recently, there are still questions about how best to design pay transparency measures. With this type of policy packages gaining momentum across governments, it will be useful if countries collected data and undertook impact evaluations to understand more about the effectiveness of different instruments and what best practice looks like. Questions that can be answered include – but are not limited to – the amount of detail that should be reported, to whom the information should be shared, how to best leverage the information in tribunals and courts, and how to streamline processes for firms. Forthcoming OECD work will focus on understanding more about countries’ individual reporting requirements and enforcement procedures to continue to evaluate the efficacy of pay reporting measures in order to draw cross-country lessons.

Better inform evaluations of competence and pay using job classification systems

Job classification systems offer a straightforward way to present workers’ pay across job functions and can therefore play an important role in informing evaluations of competence and pay by setting measurable standards of work at given wage bands. When combined with detailed pay transparency measures, this tool can make salaries more transparent for men and women across specific job categories. For classification systems to reach their full potential, they should be sufficiently detailed to account for differences in tasks and responsibilities within broad occupational classifications, and consistently introduced across firms of different sizes and across different sectors. Currently, job classification systems are used, but optional, in Germany. When used, they are required to be gender neutral (OECD, 2021[23]).

Such classification systems could contribute to limiting the role that gendered norms and expectations play in sustaining gender wage gaps. It is well known that norms and expectations influence job search and wage negotiations to the benefit of men relative to women; (Briel et al., 2020[79]; Kiessling et al., 2019[80]). Social norms vary substantially by region, such that traditional norms are less common in East Germany and urban centres with agglomerated labour markets. Correspondingly, the gender wage gap is lower in these regions. Classification systems could help objectively match roles and responsibilities with individuals in possession of the required skills. Skills mismatch is particularly important in Germany where it has been shown that more young women than men are overqualified relative to their position (Berlingieri, 2012[22]), and more men than women receiving promotions to better-paid roles and responsibilities within firms, which in turn constitutes a considerable contribution to the overall wage gap (as show in this report’s analysis).

For the same reason, Germany could benefit especially from supporting recruitment processes to encourage placing women in senior positions. Job classification systems can provide more transparency in terms of what is required for a promotion, which can contribute to more objective recruitment and promotion rounds. For instance, classification systems could more clearly identify employees who are overqualified relative to their current job specifications, and who could therefore be considered for a promotion. One way of further promoting pay transparency around job opportunities would be to encourage employers to post salary details in vacancy notices. For instance, a new pilot scheme in the United Kingdom will ask participating employers to list salary details on job adverts and stop asking about salary history of applicants, with the objective to support women’s wage negotiations (Government Equalities Office, 2022[81]).

Improve workers’ access to information on wages through pay reporting measures

Germany could do more to expand its use of pay reporting measures by mandating the sharing of information about average wages of men and women within firms. The primary value of pay reporting measures is to provide aggregate statistics as benchmarks against which employees can compare their own pay packages. Workers can then use this comparison to negotiate up their wage if it seems that might be underpaid (see some experimental evidence supporting this in Baggio and Marandola (2022[25])). Although Germany already has some pay transparency tools in place: since 2017 when the Transparency in Wage Structures Act came into law, workers can request to be provided with the average wage of a group of colleagues of the opposite sex doing work of equal value if they work for companies with over 200 staff (Aumayr-Pintar, 2019[24]). For instance, a female journalist have already raised her case against her previous employer – a leading news network – in the Federal Constitutional Court after finding out that she was underpaid relative to equivalent male colleagues (Spiegel, 2022[82]). However, the lack of general reporting means that Germany’s measures are more limited than in leading OECD countries since they do not mandate that firms disclose average or median pay.

Mandated pay reporting measures can contribute to more women being hired into senior roles within firms. Gender wage gaps are higher in the highest-pay deciles than in lowest-pay deciles, so highly paid senior managers will likely be driving a part of the overall pay gap in several individual firms. Requirements to report and publish company pay gaps could therefore have the effect of incentivising more firms to promote and hire women into highly-paid senior roles and responsibilities and thereby address within-firm wage gaps. Reporting measures could also contribute narrowing between-firm gaps by encouraging women to move into firms where there are documented opportunities for women to reach the higher echelons of the firm.

Researchers have highlighted some limitations of the pay reporting approach to narrow gender wage gaps that illustrate the need to combine pay reporting measures with other holistic measures to address wage gaps. For example, some evaluations have shown that the reason behind converging wage gaps after introducing pay gap reporting is that men’s wages have decreased or stopped growing relative to women’s earnings (Baker et al., 2019[83]; Bennedsen et al., 2019[84]; Blundell, 2020[85]). Pay reporting measures can also be limited in that they simply mandate the sharing of information. This means that the burden of identifying, raising, and rectifying pay inequity lies with the individual worker (OECD, 2021[23]). This risks putting undue pressure on people who are already in weaker bargaining positions to rectify their own situations. Indeed, women who highlight their discrimination at work risk facing a “social penalty” for having raised the issue (OECD, 2021[23]).

Explore the potential of comprehensive equal pay auditing systems

Equal pay audits cast a wider gender lens and look at a broader range of outcomes than the simpler pay reporting obligations. They usually require analysis of the proportion of women and men in each category of employee or position, an analysis of the job evaluation and job classification system used, and detailed information on pay and gender pay differentials (OECD, 2021[23]). They often offer more straightforward avenues for follow-up action than simpler pay reporting measures, placing less pressure on individuals to address their own disadvantage (OECD, 2021[23]).

The key contribution of equal pay audits is to mainstream gender sensitive thinking within firms and provide evidence for more targeted action by policy makers and firms. Audits can highlight underlying drivers, including wage gap increases during years of childrearing and pay gaps due to corporate hierarchies. For instance, they could help better understand of the nexus of childrearing, part-time work and wage premia, which is key to understanding wage gaps in Germany, but which this report is unable to fully investigate due to lacking data.

Audits can be particularly helpful in countries like Germany where the main issues relate less to bargaining and discrimination and more to other sources of wage differentials. Audits can be especially useful for addressing between-firm wage gaps since they can identify patterns of imbalances across firms with higher and lower wage premia. This is of crucial importance in Germany where increasing between-firm wage premia have been the main driver in the slow-down in the narrowing of the gender pay gap in recent years. Germany could consider introducing detailed equal pay audits on a pilot basis and evaluate their effectiveness throughout the implementation.

Auditing requirements should be introduced for large as well as small firms and there are useful ways to offset the administrative burden that (primarily smaller) firms face. These include using online calculators, use of publicly provided administrative data or providing financial support to firms that are not able to finance the burden themselves. High employer, employee and public awareness can help foster social pressure to complete the audits (OECD, 2021[23]). In the United Kingdom, (some of) the results from pay auditing are published and available to researchers, which has fostered both awareness and a ‘naming and shaming’ culture. This can contribute both to wider audit completion and to further social and employee pressure to offer fair wages and work opportunities. Some countries, including Denmark, France, and Sweden, also discourage non-compliance through the ability to issue fines (Ceballos, Masselot and Watt, 2021[21]).

6.3.2. Support wage‑setting institutions to help reduce the gender wage gap between firms

Monitor gender outcomes from the planned minimum wage hikes in 2022

Gender wage gaps driven by structural differences in wages between different firms can be affected by adjustments to the minimum wage. Across the OECD, as in Germany, women tend to be overrepresented in sectors and occupations that pay lower wages and wages at or close to the minimum wage (for instance caregiving and service sector jobs). Minimum wage increases will therefore benefit female workers disproportionately, which in turn can contribute to shrinking the gender wage gap. For example, successive increases in the minimum wage in Spain have progressively reduced the gender wage gap (OECD, 2022[86]).

Since its implementation in 2015, the national minimum wage in Germany has been paid at a stable rate relative to average wage and at a level that is middle of the pack among OECD. Since its implementation it has increased from EUR 8.50 per hour to an expected EUR 10.45 per hour scheduled to take effect from 1 July 2022 (Bruttel, 2019[87]). At the point of implementation in 2015, minimum wages were paid at 43% of average wages. The rate remained fairly stable and by 2020 minimum wages were paid at 45% of average wages (Figure 6.9).

Figure 6.9. German minimum relative to average wages were middle of the pack in 2020

Source: OECD, Minimum relative to average wages of full-time workers, https://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE.

This year the new coalition government in Germany have planned a hike in the minimum wage beyond planned annual increases, which is expected to have positive effects on the gender wage gap. Under the coalition agreement, the general statutory minimum wage is set to be raised to EUR 12 per hour, taking effect on 1 October 2022. This increase will be in addition to the scheduled increase in July 2022, occur outside the usual framework and without the involvement of the Minimum Wage Commission (Deutsche Bundesbank, 2022[88]). This minimum wage increase is expected to benefit women particularly and any effects that this raise has on the overall gender wage gap should be carefully monitored (OECD, 2022[86]).

Strengthen employment conditions through collective bargaining

Strengthening the employment conditions through wage‑setting institutions such as collective bargaining agreements could also help reduce the gender wage gap by compressing the differences in wage premia across firms. Indeed, the dispersion of firm wage premia in countries with centralised collective bargaining arrangements is about half that in countries with decentralised ones (Figure 6.10). Collective bargaining has the potential to contribute toward narrowing the gender wage gaps between firms by working to achieve targeted raises in lower-paid sectors where women are overrepresented (OECD, 2020[89]).

Expanding the collective bargaining coverage might also help improve employment conditions and thereby narrow the gender wage gaps, especially between firms in sectors where collective agreements are relatively generous. While all employees in Germany are entitled to the statutory minimum wage, they may also benefit from higher agreed wages and wage increases based on sectoral agreements in place through collective bargaining. Collective bargaining can therefore contribute toward closing gender wage gaps by expanding coverage to a wider set of workers, especially those on non-standard forms of employment (OECD, 2020[89]). Since women are overrepresented on non-standard employment contracts they would stand to benefit disproportionately, which in turn would help narrow gender wage gaps between different firms (OECD, 2020[89]).

Figure 6.10. Collective bargaining can reduce the role of wage differences between firms

Notes: This figure plots the share of wage premia dispersion in overall wage dispersion averaged by groups of countries. Firm wage premia measure the ability of firms to set wages differently for similarly-qualified workers from those of their competitors. Collective bargaining regimes are defined at the country level following the OECD taxonomy of collective bargaining regimes (OECD, 2018[15]), Countries with decentralised bargaining regimes (9): Canada, Costa Rica, Estonia, Japan, Hungary, New Zealand, the Slovak Republic, United Kingdom, United States; countries with centralised bargaining regimes (11): Austria, Denmark, Germany, Finland, France, Italy, Portugal, the Netherlands, Norway, Spain and Sweden.

Source: OECD (2021[1]), The Role of Firms in Wage Inequality: Policy Lessons from a Large Scale Cross-Country Study, https://doi.org/10.1787/7d9b2208-en.

6.3.3. Measures to enhance women’s representation in leadership positions

While increases to minimum wage legislation and collective bargaining agreements could benefit a large portion of female workers, quotas and soft measures are valuable complements to a wider strategy to combat the gender wage gap by ensuring that women fill senior positions at a similar rate as men. The analysis in this report found that gender wage gaps for similarly skilled men and women are wider at the higher end of the wage distribution. One way to mandate that women fill more senior positions across the highest-productivity firms is to enforce gender quotas for boards or senior management positions.

Several European countries, including Germany, have already implemented gender quotas following the 2010 launch of the European Commission’s Strategy for Equality between Women and Men. In 2015 Germany adopted a law that required some supervisory boards of publicly traded companies to have at least 30% women and 30% men (Figure 6.11) (Zeldin, 2015[27]). Boards in Germany have successfully increased the proportion of women on their chairs since 2013 and in 2020 on average 36.3% of board seats were held by women (Figure 6.11). These targets are slightly lower than those in comparator countries. For instance, while Sweden does not have legally binding quotas, the Government’s gender equality target stipulates that women should hold at least 40% of board seats (Boman and Paulsson, 2020[90]). Progress has been made since 2013 (although it seems to have slowed since 2016) and by 2020, 38% of board seats in Sweden were held by women (Figure 6.11). While boards have been shown to successfully raise the representation of women in board rooms, evaluations have also shown that they still face an inner glass ceiling whereby they tend to miss out on strategic and decision-making positions and higher compensation. Perhaps unsurprisingly, then, research shows that board room quotas on their own do not transform negative gender stereotypes (Rebérioux and Roudaut, 2019[91]).

Figure 6.11. Female representation on German boards exceeds stipulated gender quotas

Note: Data for 2013 unavailable for Latvia. Israel and Korea have introduced a quota mandating “at least one” woman on boards of listed companies, which is indicated at 20% in this Figure, but may differ across companies depending on the size of the board.

Source: OECD (2022[86]), Report on the Implementation of the OECD Gender Recommendations, https://www.oecd.org/mcm/Implementation-OECD-Gender-Recommendations.pdf.

Perhaps more importantly, however, other complementary soft measures such as disclosure requirements, capacity-building actions and other voluntary measures for public organisations and private firms can also be effective in increasing the proportion of women at all levels of business hierarchies. Soft measures could help to enhance the representation of women to boards and management positions, and help encourage in-house promotion of women to top jobs.

There are long-term gains too. The creation of gender-balanced talent pipelines of competent employees will help provide a reliable supply of men and women that are well-positioned to take on senior positions in years to come. This, in turn, can contribute to continuing to narrow within-firm pay gaps in future. Increased prevalence of women in senior positions might help motivate individual young women to focus on their careers by setting a precedent of women who are promoted to senior management through quotas or targets. This could be particularly important as families debate how to approach work hours after the arrival of children. If career paths and opportunities are obviously available to both mothers and fathers, families can be more incentivised to ensure that both parents can work full-time and benefit from higher-paying promotions in their later career.

There are various strategies that the government can take to increase the effective use of soft measures. For instance, it can encourage businesses to set up and reach ambitious targets by governments rewarding workforce gender diversity through certificates, awards, ceremonies and competitions. Such measures could be taken within sectors, regions or based on company size. Such measures can help spur competition among firms to attract talent and favourable public opinion, which further helps to publicise gender wage gaps and ensure that companies take ownership of the issue (OECD, 2020[92]).