Since 2017, it has been compulsory for companies in Great Britain with over 250 employees to report gender pay gaps each financial year. Data for 2018 published earlier this year shows a gender pay gap of around 10% across reporting UK organisations.1 The UK government has also begun a consultation on requiring companies to publish ethnicity pay gaps on an annual basis.2 While 63% of employers monitor ethnicity pay gaps, only 31% of employers currently publish them.3 The Bank of England has published data on its gender pay gap since 2017 and on its ethnicity pay gap since 2018. While it is widely recognised that these pay gap measures may be imperfect proxies for pay inequality, greater transparency about pay gaps can serve as an important incentive device. Publishing companies’ pay gaps encourages them to explain and, with time, close these gaps. The benefits of doing so, for individual companies and the economy at large, have been found to be large. For example, closing the gender pay gap has been estimated to add £ billion (or 27% of GDP) to UK GDP by 2025 (McKinsey (2016)), while full representation of BAME individuals across the labour market, through improved participation and progression, could add an additional £ billion (or over 1% of GDP) per year (BEIS (2017)). Internationally, similar moves to improve pay gap reporting are underway.
Today, financial firms with around $ trillion assets under management have committed to harmonised reporting using the Task-Force on Climate-related Financial Disclosures (TCFD) template.16 This has encouraged wider scrutiny of, and actions to mitigate, the risks to companies’ profits and balance sheets posed by climate change. Pay gap disclosure could have a similarly profound behavioural effect on companies. Fourth, there is also a strong case for improving the sets of data available publicly to monitor progress towards equality of pay and opportunity in the workplace. One example of useful additional data would be longitudinal data tracking individuals from school into employment, perhaps using administrative data or new surveys. This would help to understand the key determinants, and obstacles, to career and pay progression. Fifth and finally, published pay gap data are imperfect and can sometimes give a misleading impression of diversity patterns. We have demonstrated how raw pay gap data can sometimes give rise to puzzles. We 15  https://www.gov.uk/government/publications/business-population-estimates-2019/business-population-estimates-for-the-uk-andregions-2019-statistical-release-html 16 TCFD (2019). 34  All speeches are available online at www.bankofengland.co.uk/speeches  34  have also demonstrated, however, that a careful consideration of various compositional factors can resolve these puzzles and provide a clearer picture of underlying patterns. There is no reason why companies could not use these techniques when interpreting their own results.