Why Everyone Is Openly Talking About Pay
Have you seen a salary range on any job listings lately? That could be because pay transparency laws are becoming more common in the United States. New York City employers are starting to comply with the new salary transparency laws. A new pay transparency law in California is giving us an inside look at what some of the biggest companies in the world are paying their employees. The rising tide of pay transparency laws could give job seekers more leverage in 2023. It’s okay to ask, and it’s also okay to look for that information before you decide whether or
not that’s a job you really want to go after. Pay secrecy can allow gender wage gaps, racial wage gaps, various sorts of unfair pay to really flourish. But some researchers think that these laws could have a downside. What we found is that people get smaller raises. It’s slowed wage growth by approximately one third. It’s still hard to make sure that people are compensated equitably and fairly. Why are so many people suddenly talking about how much they make? And is there any catch to this news? A growing portion of the United States is requiring companies to
disclose how much they pay for a given job. Pay transparency is sometimes used to mean not punishing people for talking to each other about how much they make. But more and
companies disclose pay upon request from an applicant. So we’re seeing that in states like Connecticut, Maryland, Nevada and Rhode Island. Of course, there has been some degree of wage transparency in the states for many years. For example, virtually all federal government jobs list pay ranges. The U.S.’ Is largest employers, the government — all government salaries public. When you look at professional sports — we know what LeBron James makes. So I just kind of feel like it’s something that that does have a lot of impact. Workers have technically had the right to discuss their pay rates
since 1935. This modern movement is far more potent. It traces back to the Lilly Ledbetter Fair Pay Act of 2009. I went to work for Goodyear Tire and Rubber Company in Gadsden, Alabama, as a manager in production. That being in the factory for 19 years. I go into work on my shift and I find in my mail a note. It’s a fourth of a sheet of paper torn with my name and three men. The note said Ledbetter made less than her peers. Including folks that she had trained. She was basically being radically underpaid. In his
first month in office, President Obama signed this law, which made it easier to sue employers who pay their workers unfairly. This has been a very long journey. People like Lilly Ledbetter paved the way to make sure that there will be equal pay laws on the books and make sure now that there’s a movement toward pay transparency across the country. Other factors, like technology, are changing the conversation, too. The Internet has allowed that sort of information sharing to be sort of more normalized. It’s easier. Sites like Glassdoor, where people share their salaries more or less anonymously,
have, I think, started to shift the culture and the set of expectations. Gartner put out a research study that talked about whether employees believe that their pay is fair and only 32% believe that their pay was fair. That said, these laws could come with a catch. There are these hidden effects, and it looks like pay transparency through this bargaining channel does very much affect wages. And the effect is… It’s typically not positive. A growing group of economists believe public wage transparency may erode the bargaining power of individual workers. There is a stronger force that’s underlying
this, or at least in some ways stronger, which says the firm can now say to you, if there’s pay transparency, you know, I’d love to pay you more money than you’re making because you’re a great worker, but I can’t pay you anymore. And the reason I can’t pay you more is as soon as I pay you, you know, a little bit more than what other people are making, they’re all going to see that and they’re going to come breaking down my door asking for a raise. Bobby Pakzad-Hurson is an economist at Brown University. He and
his coauthor constructed a model that found an unintended consequence that stems from pay transparency. What we found is that people get smaller raises. A very back of the envelope calculation reveals that it slowed wage growth by approximately one third. So this means that pay transparency might have the unfortunate side effect of suppressing wages among more educated workers. That said, wages don’t change as much for people with less individual bargaining power, like union members and those with less education. Nevertheless, knowing the salary range may put many disadvantaged workers on much better footing. The issue that some
have researchers have found that perhaps overall wages decline by a couple of percentage points. Once there is a pay transparency law in place, that pales in comparison to the double digit percentage differences in pay. When you’re looking at perhaps women and men, Blacks and whites, Latinos and whites, there were some groups that were getting paid so much more than others for reasons that had nothing to do with their qualifications or very little to do with the experience they had going into that job. This is not only about earnings for my income and my family back
when I was working, but this is my retirement. It was my 401K. It was my Social Security, everything depends on what I got paid. And because I never got that money and I got shortchanged my retirement. Is extremely low, and I’m better off in some of the other women across the nation, and minorities. But it is so critical that this get changed. Also, in recent years, some companies have avoided posting jobs in places that have pay transparency laws. Colorado was the first state to require salary ranges in job postings. And when Colorado required that, in
the immediate aftermath, there were some companies that tried to get a little cute and in their postings said, “You can do this anywhere in the country except Colorado.” You can’t really do that when you have industry leaders like New York and California requiring this. So I think it could actually backfire on some companies if they list a certain state or a certain area that has pay transparency laws as an area where they’re not necessarily looking for candidates. To me, that’s a red flag. Salary transparency does give workers some information to negotiate. This could cause problems
for hiring managers around the country. A lot of these companies just are not ready. They’re not ready because of fear of the fallout of their current employees — compression. 31% of employers don’t feel like they’re prepared to comply. Employers are very, very nervous of their existing employees being upset of the of the salary rules. Finding out the pay of other people affects, at least in the short run, people’s morale. But there are some nuances. So a recent study finds that if if you find that your boss is paid more, that that might actually increase your
morale because you can say, well, great. Five years from now, I might be in that position. And so let me work harder to get there. These new laws are coming about in a tight labor market. When we’re looking at an unemployment rate as low as it is right now, this is a great opportunity for many workers to seek another position In 2023. Transparency is giving job seekers more power. Experts believe that anyone looking to make a switch should move fast. Quits are falling from pandemic highs as the Federal Reserve tightens the economy. Our model predicts
that we should see more muted effects whenever there is a tighter labor market. That said, there could be another unintended consequence. Transparency requirements may push companies to seek out talent without advertising publicly. All the same, many people believe pay transparency is a win win for businesses and employees alike. It helps get a better match between applicant and employer — it saves everybody. Time to know that at the front end. Also, keep in mind that this is about career growth too. Pay transparency laws present an opportunity for you to ask for more than just pay. Things
like mentorship, travel to conferences, getting professional development. I also think it’s important to to start the conversation once you know what the pay is or even if you don’t. How do you determine that pay? What are the qualifications? What are the skills that are required? This puts a lot of control in the hands of the job seeker. If you’ve got all this knowledge at your fingertips, just research it. You really need to talk to people and find out how is the job? How are these people as an employer, and how will we be treated? We
do see that pay transparency policies across a number of labor markets have indeed decreased inequality and forms of the gender wage gap. I view that as a good thing. We also see across a number of studies that pay transparency lowers wages. I view that as a bad thing, as the juice worth the squeeze? In some sense, I think we have to weigh these tradeoffs, and I think that’s for policymakers and voters to decide. It’s just a mindset shift and the change that leadership and people need to get used to. Come up with a structured process
for you to give raises based on productivity, based on measurable KPIs, and kind of embrace this change. Take the take the time now to fix some of those compression issues and set yourself up for future success. Information is power. I think that we’ll continue to see this push across the country.
