Pay transparency laws may be headed to your state – but do they work?

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Pay transparency laws might be headed to your state. Here’s how they’re working so far

“You’re more likely to know who your neighbor is sleeping with than what their paycheck looks like,” said Zoë Cullen, an assistant professor of business administration at Harvard Business School. The increase of salary transparency laws may soon make the latter a little less mysterious.

Cullen’s research focuses on “salary taboo” — how American employers and employees generally avoid disclosing how much a person earns — and salary transparency, the increasingly popular concept that companies disclose how much each employee makes.

People hope pay transparency will encourage fair compensation and give employees greater insight into the hiring practices of their current employers or those they are applying to work for, said Andrew Flowers, the director of Recruitonomics.

But experts caution that pay transparency, despite potential benefits, may not be a sure fix for better workplace conditions.


Here are four things to know about the state of pay transparency.

Policy (loopholes): Three states have laws on the books, but companies are starting to find ways around them

2022 is “the year of pay transparency” wrote Inc. in January — a prediction that has proved somewhat accurate, as the summer brought a small flurry of statewide pay transparency laws.

The California legislature approved two bills at the end of August that will require employers with more than 15 employees to list salary ranges on job posts, joining New York (June 2022) and Colorado (January 2021) as the third state to enact such a policy. Flowers and Sam Kuhn, an economic data analyst with Recruitonomics, compared Colorado’s job market to Utah — a bordering state with comparable demographics and economies — and found that when salaries were listed, people were more likely to apply for jobs.

But they also found that companies — many of them national firms, offering remote work — were intentionally not recruiting in Colorado. Employers could afford to skip out of hiring in a state with a population of just 6,000,000 people, Kuhn said, and find remote candidates elsewhere.

“Remote sectors are probably candidates for having very low levels of transparency,” Cullen said. “The main source of transparency is through conversations, whether people are physically next to each other.”


But with New York and California — two major labor markets, according to Kuhn — joining the pay transparency movement, there will be less of an opportunity for companies to game the system in a similar way. “There are very few firms that can afford to move out of those two very important states altogether,” Cullen said.

Job opportunity: Pay transparency changes the application game

“Right now, looking for a job is like looking for a house on Zillow, without any home prices,” Flowers said.

There are currently 20 states with some form of pay transparency law. But only a handful address salary ranges during hiring, including Colorado, California, New York, Nevada, Maryland, Connecticut, Washington and Rhode Island.

But the pay transparency laws in the latter four states listed differ, in that they only require employers to divulge salary ranges after an applicant asks, or at a certain stage of the interview process — not up front in a job posting.

This nuance, seemingly small, is important, said Marlene Kim, an economics professor at the University of Massachusetts, Boston, who studies workplace discrimination and earnings. It still gives employers the chance to personalize ranges after interviewing or seeing their resume, potentially upholding gender or race wage gaps.


Flowers, who is also in the hiring industry as a labor economist at Appcast, a job advertising company, is expecting the recruiting industry to fundamentally shift in states with pay transparency laws: People will now be able to self-select into jobs, which could see fewer applicants per role, but better matches.

“The salary posting policy is about how people search for their jobs and less about how they negotiate as an employee,” Cullen said. “We get to see how it affects application behavior.”

No more going through a whole interview process just to learn that pay expectations from you and your employer were way off the mark, Kuhn added.

Diversity: making sure all employees understand the bigger picture

Annelies Goger, an economic geographer at the Brookings Institution, is a first-generation professional in her family. She said pay transparency can help those from similar backgrounds navigate fields that traditionally have been playing this inside baseball.

The technical term for business’ inside baseball, Goger said, is “information asymmetry.” She describes this as the discrepancy of networks, negotiation experience or training, and other hiring information that some people have, and some don’t, when entering the workforce — “the unwritten rules of how to get a job.”

For example, California and New York boast substantial technology and banking sectors — two major, high-paying industries where “people tend to hire familiarity,” said Kim.

These industries, she said, often recruit from the same few institutions — Ivy League and other top schools — and end up hiring white men from similar backgrounds and experiences.

“A diverse workforce leads to better results,” Kim said. Studies have shown that diversity increases a workplace’s innovation and success.

For those who are switching careers, graduating, aren’t sure of the going rates in the field or don’t know how to negotiate well, Goger said, salary transparency can help alleviate information asymmetry in the workplace.

Cullen referenced a paper by Simon Jäger, an economist at MIT, who found that people who are paid less at a firm typically have less information about what other offers exist from other firms. “The least-paid individuals have the most to gain from [salary transparency] policies,” Cullen said.


“I could easily see, from my personal experience, how having access to transparent wage data would really help and empower people like me, even in the earliest stages of the job, to know what my situation is,” Goger said.

Goger has been in situations before where she was being underpaid — in some cases, she said, up to $30,000 compared to her male co-workers — despite her having equal or greater education, equal or greater on-the-job duties and three to five years more working experience.

“The way that pay gets determined within companies isn’t always based on perfect information about what someone’s skills and capabilities are. So that’s where you end up seeing a lot of bias creeping in about men and women — there can be a gendering of skill,” Goger said.

Salary transparency can also alleviate biases, implicit or active, for those workers who do advocate for themselves.

“Sometimes people say that women should just negotiate better,” Kim said. “But if women negotiate as hard as men do, they’re not offered the job. They’re seen as too aggressive.”


Cullen also mentioned that “transparency in the vertical dimension” could be a great motivating factor for employees — learning what your bosses get paid could positively affect the rate at which certain workers apply for higher positions in a company, which might diversify the pool of those who achieve promotions.

Work culture: The salary “hush” factor is still part of the U.S. workforce, but people are starting to see the benefits

Beginning around the early 1900s, there was a push for American newspapers to publish what they were paying their employees. Cullen said the movement ended quickly when a few influential big business bosses shut it down.

The discussion came up again in the 1940 U.S. Census, the first census to ask about income. Census-takers went door-to-door, and people were given the option of writing their salary down on a piece of paper, rather than saying it out loud — indicative of a culture that was still very sensitive when it came to salary.

Recently, Cullen found in a study she conducted that Americans were willing to pay up to two weeks of their salary to prevent their salary information from becoming public.

But while employees may still prefer to keep their salaries to themselves, when it comes to job searching, they want to know what a position pays before putting in the effort to apply.


And when the hiring market is in the job searcher’s favor (like the U.S. is seeing right now) Kuhn said, workers have greater leverage.

This is nothing new to traditionally hard-to-recruit industries, such as warehouse jobs and transportation sectors. They have for years been forced to implement pay transparency, whether required by law or not, to attract workers, Kuhn said.

In some cases — such as the trucking industry — this transparency has led to an increase in salary and benefits.

Flowers speculated that hourly workers in food service or retail industries, who currently need to “shop around” to gauge compensation, could experience similar impacts of a gamified hiring market. Kim agreed, saying that flexible hours and benefits packages could be key selling points. In a study published in August, called “The Unintended Consequences of Pay Transparency,” researchers found that personalized rewards and requests were more likely to be asked for and given in workplaces with salary transparency.

Who won’t be affected? Highly unionized occupations, Flowers said: Public schoolteachers, nurses, government employees and those with variable pay or who work on commission, such as real estate agents.


The downsides: lower morale, cutting corners at workers’ expense

But time will tell how, or if, salary transparency is a double-edged sword. Take promotions, for example, said Cullen.

“You can very easily imagine that some [current] promotions advantage women precisely because their employers realize that they get away with paying women less,” Cullen said. “So you could see how, essentially, committing to paying people equally could eventually hurt the promotion potential of women.”

It also isn’t outside the realm of possibility, Flowers admitted, that companies continue to try and skirt these regulations by posting a wide salary range.

“The suspect is between 5-foot-1 and 6-foot-8,” he joked. Listing intentionally low ranges — a range from the 10th percentile to 60th percentile, say, of what a company is actually budgeting for a job — could also be a tactic that still encourages negotiation. “It’s possible that there’s going to be some weird game theory that happens here,” Flowers said.

There is language in the California bills that is intended to keep the salary range accurate.

Another unintended consequence of salary transparency: Happiness levels might go down when workers realize they make less than others, according to a paper published by Ricardo Perez-Truglia, a research associate at the University of California at Berkeley.

But this was a feeling that, while Goger knows too well, also offers hope for why pay transparency could benefit workers in the long run.

“As soon as I found out [I was being paid less], I have to say that my morale and commitment to the company plummeted,” Goger said. “It felt like someone had punched me in the stomach and pulled one over on me. But that’s why transparency is so cool, because employers know it’s going to be public. And they could manage that perception by being more equitable.”

Thanks to Alicia Benjamin for copy editing this article.