Working Paper: NBER ID: w31060
Authors: Zoe B. Cullen
Abstract: Countries around the world are enacting pay transparency policies to combat pay discrimination. 71% of OECD countries have done so since 2000. Most are enacting transparency horizontally, revealing pay between co-workers of similar seniority within a firm. While these policies have narrowed co-worker wage gaps, they have also lead to counterproductive peer comparisons and caused employers to bargain more aggressively, lowering average wages. Other pay transparency policies, without directly targeting discrimination, have benefited workers by addressing broader information frictions in the labor market. Vertical pay transparency policies reveal to workers pay differences across different levels of seniority. Empirical evidence suggests these policies can lead to more accurate and more optimistic beliefs about earnings potential, increasing employee motivation and productivity. Cross-firm pay transparency policies reveal wage differences across employers. These policies have encouraged workers to seek jobs at higher paying firms, negotiate higher pay, and sharpened wage competition between employers. We discuss the evidence on pay transparency’s effects, and open questions.
Keywords: pay transparency; wage discrimination; labor market outcomes
JEL Codes: J08; J31; J78
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Horizontal pay transparency (J79) | lower average wages (J31) |
| Horizontal pay transparency (J79) | aggressive employer bargaining (J52) |
| Vertical pay transparency (J31) | perceptions of earnings potential (J31) |
| perceptions of earnings potential (J31) | employee motivation (M52) |
| perceptions of earnings potential (J31) | employee productivity (J24) |
| Cross-firm pay transparency (J33) | workers seeking higher-paying jobs (J68) |
| workers seeking higher-paying jobs (J68) | better salary negotiations (M52) |
| better salary negotiations (M52) | enhanced wage competition among employers (J39) |