- Pay transparency has been promoted as a way to promote wage equity and reduce worker disputes
- Research from a Harvard professor says the practice can have the effect of pushing wages lower by giving employers an edge in salary negotiations
- Worker wages fell an average of 2 to 3 percent in private sector companies with pay transparency rules between 2000 and 2016
Summary by Dirk Langeveld
More than 20 states have enacted pay transparency laws, including recently enacted legislation in Connecticut requiring employers to disclosure salary ranges for the positions they advertise. The goal of such laws is to promote wage equity, especially across racial and gender lines, and to reduce disputes between workers.
However, recent research by Harvard Business School professor Zoe Cullen finds that the laws can have the unintended side effect of driving down wages. Within a few years of the laws being passed, wages fell by 2 to 3 percent.
- Researchers analyzed data on wages and employment from more than 4 million people living in states that passed wage transparency laws between 2000 and 2016
- Wages dropped by 2.2 percent within a year of the laws’ passage and 2.6 percent within three years
- The study suggests that pay transparency strengthens an employer’s bargaining position by allowing them to turn down an employee’s request for a raise, reasoning that they would have to raise other employees’ wages as well and that the company budget would not allow it
- The laws can also give employers an advantage in setting an initial salary offer and holding firm to it
- Wage declines were lower in unionized roles than in positions with no collective bargaining