Pay transparency doesn’t always help workers.
That’s one of the findings of a new working paper, distributed by the National Bureau of Economic Research, that examines pay-transparency policies over the past two decades.
While policies that help workers compare pay across different companies can encourage them to seek better salaries or positions, policies that let workers compare pay within their company could lead to interpersonal conflict with peers or resentment about co-workers’ salaries, the paper said.
And in a truly transparent workplace where co-workers are paid equally, pay transparency could eliminate room for pay negotiation. “If workers all get the same wage and cannot negotiate this wage upward, the firm gets the power to set the wage,” wrote Zoe B. Cullen, an assistant professor at Harvard Business School and the author of the paper.
“We’ve seen a lot of wage comparisons that upset people, and employers bargain very aggressively in those cases. Average wages have taken a hit as a consequence,” Cullen told MarketWatch.
“‘We’ve seen a lot of wage comparisons that upset people, and employers bargain very aggressively in those cases.’”
Pay-transparency legislation is becoming more common in the U.S., with California, Rhode Island and Washington state this year joining New York City and Colorado in requiring employers to include pay ranges with their job listings. The law took effect in New York City last November, and Colorado enacted a similar rule in 2021. Other states are following suit, with New York state’s pay-transparency law due to take effect this September and Oregon proposing a similar law.
Cases of employees who got upset about their pay level and then had unsuccessful discussions about raises with their human-resources departments or managers surged after those laws took effect. A woman recently told MarketWatch that she saw her position posted online with a salary of $32,000 to $90,000, which was more than what she and her colleagues earned in a year. None of them got a raise or the response they expected after meeting with management, she said.
A primary reason behind pay-transparency measures is to empower workers and close the pay gap for female workers and minority workers. The wage gap remains significant between genders, and especially when gender is combined with race.
For women, median weekly earnings were 83% of what men earn, according to a 2022 analysis by the Institute for Women’s Policy Research, a nonprofit in Washington, D.C. For Hispanic women, full-time earnings were 58% those of white men, while Black women earned 63% and white women earned under 80% of what white men earned, the institute said.
Pay-equity advocates, on the other hand, say transparency regulations not only address pay gaps, but they also benefit the workplace. A majority of organizations in one study said job advertisements with pay ranges have led to an increase in the number of applicants and to better candidates.
Despite the potential unintended effects, the outlook for pay-transparency regulations is promising, Cullen wrote in her working paper. Cross-company pay transparency helps address information gaps in the labor market, allocates talent better and allows workers to learn their market value, she wrote.
And pay transparency across different levels of seniority also gives employees more motivation and knowledge about opportunities, helping them make better decisions about things like getting professional training, considering a career change and working toward a promotion, according to the paper.
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