Can pay transparency close the wage gap?

“The 360” shows you diverse perspectives on the day’s top stories and debates.

What’s happening

Anyone who’s interviewed for a job knows that salary discussions can be one of the most stressful parts of the hiring process. Asking for too much could hurt your chances of getting the position, but asking for too little could mean getting locked into a salary below what you could be earning.

This uncertainty isn’t a problem just for individual job applicants. Research suggests that it helps contribute to gender and racial wage gaps — since women and people of color are less likely to ask for, and to receive, higher salaries when they’re being hired and throughout their careers.

In an effort to combat this problem, several states and cities across the country have passed new laws aimed at taking the ambiguity out of salary negotiations. Last year Colorado enacted a law that requires employers to share a salary range for all job openings. California and Washington state will do the same starting in January. New York City will mandate wage rates in job listings beginning next month. A bill that would apply similar rules across New York state has been approved by the state Legislature and is awaiting the governor’s signature.

These laws are the most significant legal steps in a broader trend in which workers, businesses and lawmakers are reconsidering the long-held taboo against openly discussing salary with colleagues and friends. In a recent poll from the business analytics company Visier, 79% of workers said they want greater pay transparency. That’s especially true of younger employees. Nearly 90% of Gen Z-ers said they’re comfortable discussing money at work, as opposed to just 53% of baby boomers.

Why there’s debate

Pay transparency mandates are very new in the U.S., so there’s not enough data to definitively judge how much they affect gender and racial wage gaps on a large scale.

But advocates for the policy say there’s enough evidence from a small scale of trials and laws in other countries to show that forcing companies to be open about salary ranges really does help women and people of color catch up to their white male peers. Supporters also argue that pay transparency helps all workers, including white men, by denying employers a tool they use to suppress the earnings of all their employees. They say salary disclosures let workers know where they stand and give them information they need to advocate for themselves and their co-workers to be paid what they’re worth. As evidence, they point to smaller wage gaps in public sector jobs and unionized workplaces, where salaries are often more transparent.

Many, though not all, businesses oppose mandatory pay transparency, generally arguing that it makes it impossible to reward high-performing employees and could seriously hurt morale among workers who make less than their colleagues. There is also evidence from Europe, where several countries require salary ranges in job listings, that pay transparency does decrease the wage gap — but only because men’s salaries tend to go down. Another study found that disclosing pay rates leads women to feel more competitive with their female colleagues rather than with their higher-earning male co-workers.

Others argue that whatever benefits pay transparency laws might have, they are nowhere near enough to overcome the complex web of societal forces that create wage gaps.

What’s next

Experts say it’s possible that it may take only a handful of states requiring pay transparency for the practice to become the norm nationwide, even in places where it’s not mandated. Microsoft, for example, recently announced it will include salary ranges in all of its U.S.-based job openings starting next year, when the company’s home state of Washington will start requiring pay transparency for local positions.



Wage disclosure mandates aren’t a panacea, but they make a difference

“I’m not saying that pay transparency is entirely without its problems, mind you. There are pros and cons to it, like everything else in life. While transparency is good, it’s always possible to have a little too much of a good thing. … Nevertheless, I would rather deal with too much information than the current information asymmetry that exists between companies and candidates.” — Arwa Mahdawi, Guardian

Transparency helps solidify workers’ collective power

“Salary transparency in job postings will prompt people to talk more openly about their own compensation and enable job seekers to gain more information about their value in the marketplace. At the same time, companies will have to do more work to update pay policies and handle questions from employees — all amid continuing staff shortages, contentious return-to-office policies and a rise in unionization efforts.” — Hope King, Axios

Openness is key to building an equitable economy for the future

“As we continue to live and work through this crisis, stakes have never been higher for workers — especially women of color who have experienced the most severe financial impact — to be paid what they’re worth, plus tax. Transparency in pay is a start.” — Madeline Granato, CT Mirror

Workers shouldn’t have to endure the high-stakes guessing game of salary negotiations

“Broach the salary question too soon, and an employer might view it negatively. Avoid the question or salary negotiations altogether, and you risk getting underpaid. It’s a delicate song and dance. But a new wave of laws, which are requiring private companies to fork over salary details, could end that rigamarole once and for all.” — Adam Hardy, Money

Pay transparency would create lifelong benefits for young workers

“While salary befuddlement knows no age, it is particularly costly for workers who are just starting out. … While older workers have bigger, broader networks — and thus might be able to research salary options by asking around — younger workers without those contacts are more likely to be operating in the dark. That’s especially true of those who are the first in their families to go to college, or whose parents aren’t great networkers themselves, or in families where talking about money is taboo.” — Sarah Green Carmichael, Bloomberg

Businesses benefit from pay transparency too

“Hiding the ball is also inefficient; it wastes everyone’s time if the salary is a nonstarter. How does coyness about pay benefit anyone, including the economy as a whole? So much time and effort are spent on writing applications, reviewing submissions, culling candidates and conducting interviews. It’s a poor use of company time and deeply unfair to applicants who spend time applying for jobs that may not meet their needs.” — Terri Gerstein, NBC News


Closing wage gaps by lowering men’s salaries isn’t the right solution

“The jury is still out on how effective such measures are in practice. While research shows they do narrow the pay gap, rather than bringing women’s pay up to men’s, it mostly is happening by diminishing men’s relative pay and denting productivity — which in turn could prompt pushback from employers.” — Paola Tamma, Politico

High-performing workers stand to lose out

“Equality should not be confused with equity. Equitable pay implies that individuals who are more productive and contribute more to the organization receive more compensation. Inequitable pay often leads to employee dissatisfaction and turnover, especially among high performers.” — Kun Huo, Toronto Star

The emotional impact on workers is underappreciated

“Economists tend to have this general intuition that transparency is good because when more information becomes available then people can make better choices. The point I’m trying to make is that humans are not maximizing algorithms, but social animals who are prone to social comparisons. When you publicize that someone is making little money, you may hurt their feelings. Those are unintended consequences from transparency that we should consider when designing our transparency policies.” — Ricardo Perez-Truglia, economist, to Forbes

It may be impossible for some companies to keep up with workers’ salary demands

“There is that danger that once you open this Pandora’s box and overpay one person, the demands to create equity and bring everyone else up is more than a slippery slope — it is a cliff. If an employee really thinks he can get paid more elsewhere, well, sometimes, you just have to pack him a lunch and show him the door.” — Neil Senturia, San Diego Union-Tribune

This creates incentives for companies to suppress all employees’ pay

“In fact, this single wage has the effect of really strengthening the negotiating position of the employer. And the reason for this intuitively is that, when there’s one price, and an employee wants to ask for a raise, the employer can now very credibly say, Well, if I give you a raise, that means I have to probably give everybody else a raise, too. … That means that the employer has every incentive to negotiate aggressively.” — Zoe Cullen, labor market researcher, to Quartz

Creating a truly fair economy will require a whole lot more than pay transparency

“Lowering the pay gap would be an important step forward for equality in the US, affecting everything from Americans’ quality of life to how they see themselves. But while pay transparency is a much-needed improvement, a lot more is needed to truly create balance for all Americans.” — Rani Molla, Vox

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Photo illustration: Yahoo News; photos: Getty Images