Dr Vassilia Orfanou, PhD, Post Doc, COIO, LUDCI.eu
Writes for the Headline Diplomat eMagazine, LUDCI.eu
Why Markets Thrive on Information
Investors rarely commit capital without accounts. Consumers compare prices before purchasing. Lenders demand evidence before extending credit. Across the modern economy, transparency is treated as a condition of rational decision-making because it reduces uncertainty and allows participants to compare value.
The labour market has long been an exception. Employers generally know the salary band attached to a role, the budget available, what comparable employees earn and how far they are prepared to negotiate. Candidates often know little more than the job title. They estimate, search informal salary websites or reveal expectations before discovering what the organisation had already decided the role was worth.
That imbalance is the starting point for the EuroBrussels article that inspired this series. It is also the target of Directive (EU) 2023/970, which requires greater transparency before recruitment and throughout employment. Member States were required to transpose the Directive by 7 June 2026, although the practical detail will continue to depend on national implementation.
The reform arrives while the underlying problem remains material. According to Eurostat’s latest figures, women’s average gross hourly earnings in the EU were 11.1% below men’s in 2024. That unadjusted figure reflects several structural factors and cannot be treated as a measure of discrimination alone. It nevertheless shows why equal-pay rules without access to comparable information have struggled to deliver complete accountability.
Why Equal-Pay Law Needed Transparency
Equal pay for equal work or work of equal value has been embedded in the European project since the Treaty of Rome. The persistence of the gap is therefore not evidence that Europe lacked a legal principle. It shows the limitations of enforcing a principle when workers cannot see the information needed to test it. The Council of the European Union’s overview of the reform identifies weak access to pay information and difficulty proving discrimination as central reasons for the new rules.
Opacity creates a practical enforcement problem. An employee may suspect that a colleague performing comparable work earns more, but suspicion is not evidence. Job titles may differ even when work is of equal value. Variable pay, allowances and discretionary awards can obscure the comparison further. Without structured information and objective job evaluation, the right to equal pay depends heavily on the worker discovering a difference and carrying the burden of proving it.
Eurostat’s public-private comparison is revealing. In 2024, almost every EU country with available data recorded a higher pay gap in the private sector than in the public sector. Eurostat notes that transparent public-sector wage grids may be part of the explanation. Formal pay structures are not automatically fair, but they make differences easier to identify and harder to justify through private bargaining alone.
The Directive imports part of that discipline into a much wider labour market. Its concept of “work of equal value” asks organisations to look beyond titles and compare relevant criteria such as skills, effort, responsibility and working conditions. That is a significant organisational task. It requires employers to understand their own pay systems before employees, regulators or courts ask them to explain those systems.
What the Directive Actually Changes
The European Commission’s June 2026 explanation sets out the practical architecture. Employers must inform applicants of the starting salary or pay range in the vacancy notice or before the interview and may no longer ask about pay history. Employees can request their individual pay level and average pay levels, broken down by sex, for categories performing the same work or work of equal value. Employers with at least 100 workers face reporting obligations, and an unjustified gender pay gap of at least 5% can trigger a joint pay assessment.
The Directive also strengthens enforcement. Workers who suffer pay discrimination may claim compensation, penalties must be available, and employers that fail to meet transparency obligations may have to prove that discrimination did not occur. These provisions move transparency beyond good practice. They turn information, documentation and job evaluation into elements of legal and corporate governance.
Importantly, the rules do not require identical salaries for every employee with a similar title. Organisations may still recognise experience, performance, scarcity and responsibility. What changes is the expectation that differences should be explainable through objective, gender-neutral criteria rather than inherited negotiation outcomes or undocumented managerial discretion.
| The Directive does not set wages. It changes the information on which wages are negotiated, compared and defended. |
From Equal Pay to Market Design
This is why the reform should not be read only as an employment-law intervention. It is also a change in market design. Compensation has traditionally been negotiated under information asymmetry: the employer knows the price range; the candidate attempts to discover it. When one side consistently possesses better information, outcomes may reflect bargaining confidence and access to private knowledge as much as productivity or skill.
The economic logic echoes George Akerlof’s classic paper, “The Market for Lemons”. Akerlof showed how uncertainty about quality can distort prices and prevent mutually beneficial transactions. Labour markets are not identical to used-car markets, but the principle is relevant: incomplete information produces search costs, weakens price discovery and can cause workers and employers to make avoidable mismatches.
A candidate who completes four interviews before learning that the salary is unacceptable has incurred a real cost. The employer has done the same. A professional who underestimates the market may accept below-value compensation. An employer whose ranges are persistently uncompetitive may receive fewer suitable applicants without understanding why. Transparency cannot remove every inefficiency, but it makes the price of labour visible earlier in the transaction.
What Early Evidence Suggests
Research already suggests that disclosure can alter pay outcomes. Baker and colleagues’ study of public-sector salary disclosure in Canada found that the laws reduced the gender pay gap among university faculty by roughly 20% to 40%. The result should not be transferred mechanically to every private employer, but it demonstrates that access to pay information can change wage-setting behaviour rather than merely expose it.
Evidence from Austria is similarly instructive. Gulyas, Seitz and Sinha’s analysis of mandatory pay-transparency reporting found that disclosure affected the gender wage gap, while also showing that the mechanism and magnitude depend on how rules are designed and applied. Transparency is therefore not a self-executing cure. It works through managerial response, worker bargaining, public scrutiny and the credibility of the information disclosed.
The EU framework goes further than many earlier reporting regimes because it reaches both recruitment and internal pay governance. It addresses not only the outcome—the pay gap—but also the processes through which pay is set: salary history, advertised ranges, access to information, job evaluation and enforcement.
The Beginning of a Different Labour Market
The immediate temptation is to view the Directive as a compliance timetable: map roles, prepare reports, rewrite advertisements and train managers. Those actions are necessary, but they understate the strategic change. Once salary becomes a visible market signal, candidates can compare opportunities earlier, employees can challenge internal inconsistencies and competitors can observe each other’s pay architecture. Compensation moves from a largely private negotiation towards a partially observable market price.
That shift creates both promise and tension. Better information may reduce wasted recruitment, strengthen equal-pay enforcement and improve mobility. It may also increase wage pressure, expose historic inconsistencies and constrain the discretion employers have used to attract or retain particular individuals.
Part II examines the most personal consequence of the reform: how salary ranges and the ban on salary-history questions change negotiation. The central question will no longer be simply “How much can I ask for?” It will increasingly become “Where does my evidence place me within the range?”
References
Akerlof, G.A. (1970). The Market for “Lemons”: Quality Uncertainty and the Market Mechanism. Quarterly Journal of Economics, 84(3), pp. 488–500.
Baker, M., Halberstam, Y., Kroft, K., Mas, A. and Messacar, D. (2019). Pay Transparency and the Gender Gap. NBER Working Paper No. 25834.
European Commission (2026). New EU rules on pay transparency explained. 5 June. (Accessed 21 July 2026).
European Union (2023). Directive (EU) 2023/970 on pay transparency and enforcement mechanisms. Official Journal of the European Union, L 132, pp. 21–44.
EuroBrussels (2026). The End of Salary Guesswork: How New EU Transparency Rules Could Change Hiring Across Europe. (Accessed 21 July 2026).
Eurostat (2026). Gender pay gap statistics. Data extracted February 2026. (Accessed 21 July 2026).
Gulyas, A., Seitz, S. and Sinha, S. (2023). Does Pay Transparency Affect the Gender Wage Gap? Evidence from Austria. American Economic Journal: Economic Policy.
