The Quiet Revolution of Pay Transparency | Roundup #5
No more "deciding at the pump" for workers
California Requires Pay Transparency in Job Postings
Imagine if you went to a gas station to refuel, but had no idea what the price per gallon was until you pulled up and inserted your credit card into the machine. Only then could you decide whether to just bite the bullet and buy at the quoted price, or get back in your car, drive across town to another gas station, and try it all over again.
In this situation, would gas be more or less expensive than it is now? Gas stations would probably bank on the fact that you, like other humans, are irrational (lazy) in very predictable ways. They’ll price gas higher since they know you’d be more likely to stay than to leave.
As with gas prices, same with job pay.
From the LA Times:
Companies with 15 or more employees in California will be required to list salary ranges for all job postings under a law signed by Gov. Gavin Newsom this week.
Senate Bill 1162 is set to take effect Jan. 1 [2023], bringing California in line with states such as Washington, Colorado and Connecticut that have passed similar wage transparency laws in recent months. It builds on previous legislation, SB 973, signed in 2020, which requires companies with more than 100 employees to submit wage data to the state’s Department of Fair Employment and Housing…
The new law aims to equip workers with more leverage when negotiating pay. Lawmakers referenced a study conducted by the National Women’s Law Center finding that when companies disclosed salary ranges upfront, women and people of color were more willing to negotiate and more successful in negotiating.
Requiring salaries on job postings can be a powerful tool to reduce information asymmetries between employers and workers. It forces employers to share information with workers they might otherwise keep secret for their own benefit. Workers benefit from being able to make more informed, rational choices rather than “deciding at the pump.”
As mentioned in the LA Times article, withholding pay information harms all workers, but it tends to harm certain types of workers more than others. And pay transparency laws can help. A working paper from the National Bureau of Economics Research found that salary disclosure laws in Canada reduced the gender pay gap between men and women “by approximately 20-40 percent.”
These policies seem to have broad support in blue states like California and Washington, but there may be other generational trends indicating increasing support for these measures. As Bloomberg reports, Gen Z is more than 3 times more likely to share their salary with their coworkers compared to Baby Boomers.
I would suspect that more states will probably institute pay transparency laws, and more empirical studies will be conducted on their effects. With the economic benefits and the cultural tailwinds, I’d imagine a national salary transparency law to be considered in Congress within a few years.
Issues with the Existing Pay Transparency Legislation
Of course, many issues remain with the pay transparency policies as-is. One that I discussed in a previous Workonomics post is the risk that increased salary transparency will allow data-savvy employers to tacitly collude with each other.
However, this risk may be balanced out if workers become more savvy about switching companies, as job postings will now tell them exactly how much they can get paid elsewhere. In economic terms, pay transparency will reduce ‘friction’ for workers in the labor market. So the net effect is not very clear.
Another potential issue around the policy in its current form is the lack of requirements about bonuses or benefits, which are a significant amount of compensation. Companies can still hide a decent amount of this information from workers, forcing them back into the old state of affairs where workers need to interview in order to learn what their compensation is. Market competition may ameliorate much of this problem, with employers in competitive markets seeking to disclose more compensation information to attract the best candidates. This is why antitrust policy is crucial for workers.
The most glaring hole in the policy is its exclusion of pay transparency for independent contractors. More than a third of the US workforce freelanced in 2021, and while many skilled freelancers are doing quite well financially, gig workers are frequently earning below minimum wage without adequate policy interventions (check out last week’s roundup). By making pay transparency requirements more stringent for employers but not for contractor platforms, this loophole implicitly creates an incentive for companies to ‘contractify’ their workforce and avoid pay disclosures.
Pay transparency policies of course would need to be modified for digital contractor platforms. Uber, Doordash, and Upwork are marketplaces that connect workers with customers directly, and don’t have job postings. However, these platforms can aggregate historical worker pay, subtract out worker expenses, and display benchmarks on their website so prospective contractors can make more informed decisions. This increased pay transparency can ultimately create upward wage pressure on the gig companies.
The Takeaway
Pay transparency policy is a reminder that we all have a choice. We can preserve the status quo, with companies making minimal upfront disclosures around worker compensation, or really any other information about the job. Workers, as they are now, will be forever doomed to “decide at the pump.”
But we could also level up and create a more dynamic labor market. We can encourage an environment where workers are well informed about their options. We can create a system where employers offering competitive pay can flourish, and those holding back worker compensation for no good reason get punished. For jurisdictions that have not passed pay transparency laws yet, this is what is at stake.
Noteworthy Links
New Research
NBER: Income increases by defense spending primarily accrue to households without a bachelor’s degree
SSRN: The EU Commission’s proposal for a Directive on Platform Work
Indeed: In a tighter labor market, employers are now more likely to advertise key benefits in job postings
Other News and Perspectives
New York Times: Factory Jobs are Booming Like its the 1970s
Sports Illustrated: The Minor Leaguers Who Sprung a Union on the MLB
European Union: Resolution on Mental Health in the Digital World of Work
Economic Policy Institute: Overtime pay will help, not hurt, New York’s farms
Noah Smith: How much will beating inflation hurt American workers? (and this related Twitter discussion)
Washington Post: Worker protests at airports spread nationwide over staffing and pay
The American Prospect: Industrial Policy Without Industrial Unions
Jackson Lewis: FLSA Retaliation Provisions Protect Anticipated Collective Action Members, Third Circuit Holds
Attila Lindner (UCL): It's time to increase the UK National Living Wage to help with the cost of living
Bloomberg: Labor Board Seeks Court Order Against Kimbal Musk's Gardening Nonprofit