Challenges and dilemmas related to the EU pay transparency directive

Abstract

The European Union’s Pay Transparency Directive adopted in 2023 seeks to reduce gender pay gaps by strengthening pay transparency and introducing firm-level reporting requirements. The objective of this study is to test the reporting and compliance logic of the directive using administrative data and to show to what extent the measured gender pay gaps, workers’ exposure to inequality, and the compliance burden placed on firms depend on the chosen measurement and categorization decisions. Our analysis relies on an anonymized administrative dataset covering the entire employed population in Hungary in 2022, which allows us to compute the indicators required by the directive under different levels of occupational classification. Our results show that both the magnitude of the observed gender pay gaps and the potential compliance obligations depend strongly on how job categories are defined, the level of detail applied in the classification, and the extent to which observable characteristics (such as age and work experience) are taken into account. Based on these measurement exercises, we identify several critical points where careful national-level implementation could help ensure that the directive’s objectives – reducing gender pay gaps and improving transparency – are achieved while keeping administrative burdens within reasonable limits.