Wharton's Janice Bellace, Penn's Janice Madden and University of Iceland's Thorgerdur Einarsdottir discuss Iceland's new gender pay gap law.

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. The policy requires companies with more than 25 employees to certify that they pay equally, regardless of gender or ethnicity. This move has drawn international attention, especially from the United States, where women still make substantially less than men. But can the progressive policy of a tiny island nation work in a country as diverse and politically complex as the U.S.? The Knowledge at Wharton show on SiriusXM channel 111 recently invited Janice Bellace, Wharton professor of legal studies and business ethics; Janice Madden, professor of regional science and sociology at the University of Pennsylvania and a real estate professor at Wharton; and Thorgerdur Einarsdottir, professor of gender studies at the University of Iceland, to discuss the issues surrounding pay equality.

The following are key points from their conversation:

Iceland’s law was a long time in the making.

Einarsdottir said her country’s new policy is the result of a decades-long fight for wage equality that gained momentum in 2012, when the government implemented a certification system for company salaries. The government worked with various social partners to achieve a policy that appealed to both liberals and conservatives, and a lot of pressure came from women’s advocacy groups.

The reaction has been “rather positive, I must say, because this has been a long process,” Einarsdottir said. “It [had] bipartisan support in the parliament, where it was adopted. There hasn’t been very much resistance, actually.”

Bellace said her initial reaction to the news was positive. “My first reaction was that this is great because you can have a right, but there’s no way to enforce it…. You might not even realize [there’s an] issue. Here’s a government doing something,” she noted. “At the same time, in several European countries where [pay inequality] is also happening — in Germany and the U.K. — they are looking at this [issue and] women’s groups are saying, ‘Wait a moment. We have this great guarantee, but why hasn’t the gap narrowed?’ That’s what [Iceland is] pushing forward on.”

Madden said she’s not sure how the new policy works from a legal point of view. “[In the U.S.,] we enforce our laws through the courts, and I don’t know if that’s done in Iceland. If this [policy were enacted] in the United States, it would change the standard of proof as to how you prove discrimination, where the favor would be that discrimination is there unless you prove otherwise, which would be very different.”

“In Iceland, we are more used to active measures by the government to correct things, and people accept that.”–Thorgerdur Einarsdottir

In the United States, it’s more complicated.

Einarsdottir said her university has received numerous international inquiries about the policy and how it could be translated and implemented in other countries. But she concedes that putting such a policy in place in the United States would require a seismic culture shift, starting with 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,” she said of workers knowing their colleagues’ salaries. “We’ve had the gender equality act since 2008, where wage secrecy is forbidden. It’s not so much in the debate.”

Bellace and Madden pointed out that Iceland is vastly different from the U.S. by all measures.

“A country with 335,000 people that’s an island has the ability to think about how to set wages and divide up resources in the country in a way that they control, in a way that the United States or a country that’s more a part of the international trade situation cannot,” Madden said.

Bellace also noted that Iceland is about 80% unionized, which makes it easier to create an enforceable standard.

According to Einarsdottir, the issue comes back to a greater willingness on the part of Icelanders to accept government directives. She gave the example of paternity leave in her country, which allows men to take up to three months off for a newborn. The policy was approved in 2000 with bipartisan support and the hope was that it would correct certain gender-based market failures — employers could no longer be biased against hiring women if men could also take substantial leave.

“That was [optimistic, and] it just didn’t turn out to be like that,” she said. “But in Iceland, we are more used to active measures by the government to correct things, and people accept that.”

It’s a question of comparable worth.

While the gender pay gap is a persistent problem around the globe, the gap in the United States is particularly large for a developed nation: Full-time female workers make an average of 80 cents for every dollar their male counterparts earn.

“The U.S. has among the largest of the gender gaps, but we have more wage inequality,” Madden said. “The evidence seems to be that the reason we have a larger gender gap is we have much more variation in wages than other countries do. I don’t think we’re an outlier once you consider that we’ve got more wage variability overall.”

“The U.S. has among the largest of the gender gaps, but we have more wage inequality…. I don’t think we’re an outlier once you consider that we’ve got more wage variability overall.” –Janice Madden

Bellace agreed and cited a 1950s-era international legal standard that calls for equal pay for work of equal value.

“We don’t have that in the United States. That’s not what our statute says,” she said. “In much of Europe, the law says equal pay for work of equal value. The moment you say that, you have to ask, ‘How do you determine what equal value is?’ You could have a woman say, ‘Gee, I think my job is paid too low versus some other job.’ How is she going to prove this? How is she going to know?”

Outdated American laws are at the heart of the problem, Bellace and Madden said.

“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,” Madden said, 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.”

Bellace illustrated that point with a real case study that she said “astounds” her students whenever she teaches it. In a certain jurisdiction, parking meter repair people with a few months of training made greater salaries than public health nurses with bachelor’s degrees.

“Under the American statute, you cannot bring that case because our statute says the job has to be the same or substantially similar. They’re not,” Bellace said. “Under an equal value guarantee, you could bring the case. The question is, how do you prove it? But at least you could bring it. And the U.S. Supreme Court just basically said no [because of] the way Title VII is written. So, we have an old-fashioned statute.”

Iceland should move forward with cautious optimism.

The story in Iceland has advocates around the world asking the question: If Iceland can do it, why can’t we? Einarsdottir believes the great expectations need to be tempered.

“Unfortunately, I think there is too much expectation, partly because of the international publicity,” she said. “I think we have to be careful how we frame this reform because it’s a very useful tool. It’s an attempt to make [pay] more objective and transparent and systematic. But there is … no quick fix. I think also there is a risk of false security.”

The policy’s long-term economic impact is anyone’s guess. That’s because there’s also the question of whether jobs that are held predominantly by women are underpaid, or whether the ones held predominantly by men are overpaid.

“In compensation, it’s all relations between jobs,” Bellace said. “Theoretically, one might say that in the long run you’d have more efficient labor markets because the prices for jobs would be better known. But that’s in the long run, not in the short run.”