Gender-Equal Pay Laws May Have an Unexpected Effect on the Shadow Economy

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Gender-Equal Pay Laws May Shrink the Shadow Economy. A new HAPRI study co-authored by Canh Phuc Nguyen (HAPRI Senior Research Associate) and colleagues uses data from 162 countries, 1995–2018. It finds the main mechanism is higher male labour force participation. Nguyen Doan, Canh Phuc Nguyen (HAPRI Senior Research Associate) and co-authors. In a small Vietnamese garment workshop, a man and a woman sit at neighbouring sewing machines stitching identical shirt panels from the same stack of fabric, lit by soft daylight from a side doorway. Potted greenery trails down a shaded wall behind them.

Gender-Equal Pay Laws May Have an Unexpected Effect on the Shadow Economy

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Canh Phuc Nguyen — Senior Research Associate

Laws mandating gender-equal pay for work of equal value appear to reduce the size of the shadow economy, according to a new HAPRI study of 162 countries co-authored by Nguyen Doan, Canh Phuc Nguyen (HAPRI Senior Research Associate), Huong Doan and Binh Quang Nguyen. The authors find that such laws also increase male labour force participation, which creates other challenges for policymakers, who need to assess whether employment laws achieve their initial target of supporting disadvantaged female workers in the labour market.

Context

Laws mandating non-discrimination on the basis of gender, such as gender-equal pay for work of equal value, are expected to empower women, especially in employment, to achieve gender equality. This study looks for new evidence that such a law might also have unexpected effects, and examines one of them: its link with the shadow economy.

*Main mechanism: higher male labour force participation*

Methods

The authors use data from 162 countries from 1995 to 2018. They measure the shadow economy with two models, multiple indicators and multiple causes (MIMIC) and dynamic general equilibrium (DGE), and use instrumental variable estimates to examine the mechanism behind the result.

Key findings

Laws mandating gender-equal pay for work of equal value appear to reduce the size of the shadow economy.
On average, the shadow economy reduces by 0.198 percentage points as measured by the MIMIC model and by 0.514 percentage points as measured by the DGE model in countries mandating gender-equal pay for work of equal value.
Such laws also increase male labour force participation by 0.543 percentage points.
Instrumental variable estimates confirm that increased male labour force participation is the main mechanism for reducing the shadow economy.

Policy implications

These findings imply that laws requiring equal pay for work of equal value are not only a good actor in harmonizing the shadow economy but also create other challenges for policymakers. These findings imply that policymakers need to assess whether employment laws effectively achieve their initial target of supporting disadvantaged female workers in the labour market.

Keywords:

Shadow Economy
Gender-Equal Pay
Equal Pay Legislation
Male Labour Force Participation
Gender Equality

Link:

https://doi.org/10.1111/issj.12573

Citation:

Doan, N., Nguyen, C. P., Doan, H., & Nguyen, B. Q. (2025). What Is the Unexpected Impact of Mandatory Gender‐Equal Pay for Work of Equal Value on the Shadow Economy?. International Social Science Journal, 75(257), 585-601.