Would Iceland’s equal pay law work in the U.S.?

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Jan 23, 2018
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Knowledge@Wharton staff

Presented here for discussion is an excerpt of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

The New Year ushered in a new wage policy in Iceland, where it is now illegal for companies to pay men more than women for the same job.

This move has drawn international attention, especially from the U.S., where full-time female workers make an average of 80 cents for every dollar their male counterparts earn. But could the progressive policy of a tiny island nation work in a country as diverse and politically complex as the U.S.?

The law was a result of a decades-long fight driven by women’s advocacy groups. Putting such a policy in place in the U.S. would require lifting the veil of secrecy on what different employees within a company make.

“It’s difficult for me to compare because I don’t know how it is in the U.S., but that’s not so sensitive here in Iceland,” Thorgerdur Einarsdottir, professor of gender studies at the University of Iceland, said of workers knowing their colleagues’ salaries on a recent Knowledge@Wharton show on SiriusXM. “We’ve had the gender equality act since 2008, where wage secrecy is forbidden. It’s not so much in the debate.”

Iceland is also vastly different from the U.S. Being smaller, less tied to international trade, about 80% unionized and more willing to accept government directives all helps enforcement of such a law.

Outdated American laws are also at the heart of the problem for the U.S.

“This is an awful lot like the debate that happened in the 1980s in this country with respect to this concept called comparable worth, where lawyers were trying to say that Title VII of the Civil Rights Act here requires that you pay jobs of equal worth the same,” said Janice Madden, professor of regional science and sociology at the University of Pennsylvania, referring to the provision of the 1964 law that prohibits employer discrimination on the basis of sex, race, gender, national origin and religion. “What constitutes equal worth? … It ended up that the courts tossed that out. It has been used a little bit in government jobs, but it really had little effect, and there was a huge backlash.”

DISCUSSION QUESTIONS: Would an equal pay law work in the U.S.? Do you have any solutions for reducing disparity in pay, particularly as it applies to retail?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"We should be setting pay by job, not by gender (or race or age or anything else)."
"I frankly don’t think the United States is sophisticated enough to adopt this concept."
"Achieving perfect equality would mean eliminating all vestiges of meritocracy and I don’t think that would be good for American competitiveness..."

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23 Comments on "Would Iceland’s equal pay law work in the U.S.?"


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Ian Percy
BrainTrust

There’d be a lot of differences and details to be worked out for sure. But from a more general perspective my comment is that there’s a LOT of ideas, processes and systems developed in other countries that would solve many of the social and economic problems we have here in the U.S. That is IF we could ever get past our egotistical “not invented here” mindset. For all the claims about being the greatest in everything, the brutal reality is that it is simply not so. A little humility and a lot more open-mindedness would go a long way.

Jennifer McDermott
Guest

Well said, Ian. While not everything that works one place would work here, what a wonderful opportunity to implement something that has already been trialed and has proven success in adjusting social inequality.

Peter Luff
BrainTrust

While the aim fits well with the U.S. direction of travel to reduce the disparity in pay based on gender, particularly as it applies to retail, culturally the approach will jar against the free market movement in the U.S. and desire for less red tape and less government, not more. For Iceland and other Nordic countries government intervention is almost expected, so the fact this took so long to pass as a law for them suggests it will not be any time soon for the U.S.

Ralph Jacobson
BrainTrust

In salaried jobs, there is most often variances in pay for the same job due to the earning history of the employee. In hourly jobs, men make exactly what women make based upon tenure and job, more often than not. Yes, there should be reviews by HR to ensure there is no gender earning disparity. This can be accomplished with diligent follow through by employers without requiring more laws.

Ryan Mathews
BrainTrust

I’m not sure your premise with respect to pay equality is accurate if you look across the brand spectrum of all hourly workers, especially blue collar workers. I think a rigorous analysis might find lots of examples of men out-earning women. That said, you raise an interesting point in respect to tenure. It would be useful to see an analysis of layoffs and downsizing based on gender. Ditto for promotions, especially from hourly to salary. I’m not sure why we are discussing the efficacy of equal pay for equal work. That should be the law — period, full stop. But, as you suggest, it is a complicated model. If men get preferential pay, promotion, training, etc. then they will also have longer tenure, more experience, etc. — all of which becomes a justification for pay inequality.

Ralph Jacobson
BrainTrust

Good insights, Ryan. I do feel this needs to be addressed continually to help ensure equality in the future.

Dr. Stephen Needel
BrainTrust

I still find it hard to believe that this remains an issue in American business. We should be setting pay by job, not by gender (or race or age or anything else). You do a great job, you get the top end of the pay scale for that job. You do an average job, you’re at the bottom. But you start out equal.

Shep Hyken
BrainTrust

I don’t know about this being a law, but the concept is simple. For certain positions it’s easy. I’d have to see how the law is written to have an opinion on it. That said, two people, a man and a woman, have the same responsibilities (job description), same ability, experience, time with the organization, etc. All things being the same, why would one be paid more than another?

Cathy Hotka
BrainTrust

I frankly don’t think the United States is sophisticated enough to adopt this concept. If the last presidential election showed us anything, it showed that the irresponsible alpha male still rules in America. It’s a shame.

Ian Percy
BrainTrust

Wish I could give you a dozen thumbs up, Cathy!

Ian Percy
BrainTrust

I stand proudly with Cathy in the face of all the red thumbs!

Ricardo Belmar
BrainTrust

Nicely stated, Cathy — you got my thumbs up!

Ben Ball
BrainTrust
One potentially workable solution to ensuring equal pay is employee stratification. In that scenario “levels” or “grades” (U.S. Government terminology) are established. Then pay ranges are assigned to each level and jobs are assigned to a level. Employees are paid based on level — not job title. If the job is a Level 2, you get a Level 2 salary — period. Sounds simple enough, but even within that system there are pay ranges and for good reason. An employee entering Level 3 may be there for several years and they may be doing a perfectly fine job. Are there to be no merit increases for that employee the entire time? Is there to be no distinction made in the merit increases of stellar performers versus mediocre? You could take that approach — but the only employees you would have left after eighteen months would be those who couldn’t get a job at Microsoft. I think we can improve in this arena. We can certainly eliminate obvious abuses. But achieving perfect equality would mean eliminating… Read more »
Al McClain
Staff

One issue with this approach is that employees at one level spend a lot of time angling to get to the next pay level or grade, because of the pay difference, than actually working.

Ben Ball
BrainTrust

I agree with you that this is true. But isn’t that true with ALL systems of stratification in the workplace?

Ryan Mathews
BrainTrust

Ben, I’m not sure that equal pay for equal work signals an automatic end to meritocracy. The issue isn’t whether objectively better employees should be paid the same as mediocre workers, it’s whether women should be paid the same as men for the same work. If gender isn’t a factor in determining “merit” — then there should be no problem. I think any number of approaches could work — emphasis on could — provided gender is not a consideration. Of course, that’s pretty hard to ensure given the good old boy culture that still dominates in corporate America.

Ben Ball
BrainTrust

Good observation Ryan. But let’s put it to the test. Suppose we could absolutely eliminate gender as a consideration in pay variation. If we are dealing with a standard deviation across a sufficient number of observations — you will still end up with some set of instances where the women will make less than the men and vice versa. Will we consider “gender pay equality” adequately addressed then — or will we still consider the outliers to be “gender based”?

Ryan Mathews
BrainTrust
Ben, again I don’t think this is an issue of eliminating differences between “Employee A” and “Employee B.” It’s a question of the justification of the higher or lower pay. In a perfect world there would be no outliers, i.e., there would be equal pay for objectively agreed to — and met — standards and everyone meeting those standards would be paid the same. So, an idealized model would count “soft” attributes such as zeal, commitment, creativity, etc. in addition to more traditional metrics. The fly in the ointment is determining who is interpreting compliance to the standard. Like it or not most managers promote/reward folks like themselves. But, the bottom line here is that we ought not let the theoretical best be the enemy of the pragmatic better. Let’s get all workers paid the same for the same work and then we can iron out the nuances which, by the way, I realize is far easier said than done. But, we have to start somewhere and equal pay for equal work seems as good… Read more »
HY Louis
Guest
2 years 25 days ago

A small country like Iceland, with about 350,000 people and nearly all the same ethnic background, can do a lot of things the USA can’t, because of its diversity and bureaucracy. From what I understand, the USA already has equal pay laws. Disparity often is a result of negotiation ability and lack of transparency.

When someone is a rainmaker, there is always somebody willing to pay them more.

David Livingston
Guest
2 years 25 days ago

Iceland has an easier job at this. Women are more educated and marry later having fewer children. They tend to work more hours. Due to the outward migration after the financial collapse of their economy, they are now in need of workers, having to import from Norway or Poland. Women hold a much bigger bargaining stick in Iceland.

Culturally, men and women often do not hold the same kinds of jobs so it is more difficult to compare. Those that can be compared are few, so much easier to regulate. I think this made bigger news outside of Iceland than inside.

Jim McElroy
Guest

Who isn’t in favor of the concept of equal pay for equal work? Among large retailers, at least 3 claim they’re already there: Amazon, eBay, and Starbucks. All 3 seem to be pretty successful. Meanwhile, occupations with some of the largest gender wage gaps include retail salespersons and first line retail supervisors. This could be a major opportunity for some retailers to improve customer loyalty and gain a competitive advantage. Let’s see who takes advantage of it.

Craig Sundstrom
Guest

You can’t “solve” a problem without an agreement that it exists, and I don’t think we’re at that point…yet. For every study that claims there is discrimination there are one or two that claim it doesn’t exixt, and while many of the latter are nonsense of the “separate but equal” variety, that isn’t always the case. At any rate, in answer to the direct question, no I don’t think Iceland will serve as a model.

Ricardo Belmar
BrainTrust

It’s amazing we still have this issue to discuss at all. Salary should be based on merit — which can include experience, skills, ability, etc., all tangible things that you should be able to put a value on for any given position. Why does it continue to be difficult? Most people would say it’s dependent on some very old-fashioned & out-dated views on the capacity to have the right skills. While Iceland’s approach may or may not be the right answer for this country, I’m sure there are plenty of ideas on how to approach and correct the disparity found in other countries. We don’t always have the right answers — sometimes you just have to admit that others have better ideas than you do!

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Braintrust
"We should be setting pay by job, not by gender (or race or age or anything else)."
"I frankly don’t think the United States is sophisticated enough to adopt this concept."
"Achieving perfect equality would mean eliminating all vestiges of meritocracy and I don’t think that would be good for American competitiveness..."

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