Higher and more equitable pay through more transparent wages
By Sarah Bianchi and Ben Harris
Yesterday was Equal Pay Day — a day that reminds us that many must work almost four extra months to earn the same yearly wage as the average male worker. (For women of color, this pay gap is even greater.) This inequity is not only unfair to millions of hardworking women, it is preventing millions of families from receiving the pay they need and deserve.
As the wage disparity between men and women persists, so too does the persistent decades-long stagnation in wages. Even today, with steadily rising productivity and tight labor markets, wage growth remains tepid for most workers. As economists and policymakers search for strategies to both boost wages and make pay more equal, one relatively simple strategy shows promise: making wages more transparent.
Wage transparency initially emerged as a strategy for combating gender-based pay discrimination in the workplace. Equal pay advocates are fighting to put female workers on equal footing by both prohibiting companies from asking about prior pay until an offer has been made and by prohibiting companies from retaliating against workers who discuss pay. A complementary strategy has been to boost resources for data collection, including in particular better data by gender.
The central tenet to this approach is that information is power. In practically every market, knowing prices is a key component to achieving efficiency. Homebuyers ask for “comps” when purchasing a home to better understand the market, drivers shop for the best price for gas before filling their tank, and air travelers use metasearch websites to know all their options before purchasing an airline ticket. In these cases, knowing the various prices are key to getting the best deal. The same is true in the labor market.
The fundamental challenge is one of “asymmetric information” — employers often have superior information about the wages in a particular market. Through salary surveys or compensation surveys, employers can often know exactly what workers are paid for a given job. If a company wants to pay a worker better than 30 percent of the market, for example, the human resources department knows exactly what to offer. While these surveys are rightly justified as tools for employers seeking to make a competitive wage offer, they are a vehicle for tipping the scales unfairly towards hiring companies. It’s difficult to argue that you’re underpaid if you don’t know you’re underpaid in the first place.
The challenge is that in the U.S., most workers probably don’t know what their counterparts make. Many public-sector wages are made public online, but the practice is rare among private sector companies. Websites like Glassdoor have increased the transparency around user-reported salaries, but the accuracy of the information is unconfirmed and the data collection is far from scientific. A handful of enterprising companies, like Buffer, publish all their workers’ salaries, but these cases are extreme outliers. Large companies have recently been required to publish the ratio of their top-paid executives to the typical worker, but the data provides little information for individual workers.
Part of the challenge for workers is overcoming workplace policies that discourage discussions around pay. A recent survey of workers from the Institute for Women’s Policy Research showed that only about one-third of private sector workers were in a job where wages were public or could be freely discussed. A shocking one-quarter of workers reported being in a workplace where wage discussions were either formally prohibited or could result in retaliation by the employer.
Fortunately, states are taking action. To date, 15 states have passed laws explicitly outlawing workplace policies that discourage workers from talking about wages. And a handful of states and cities have banned the practice of employers asking about prior pay level until an offer is formally made — an action designed to limit the continuation of prior discrimination.
We’re also seeing action by other countries. Germany recently passed a law allowing workers suspecting discrimination to request that their employer provide them with an average salary of comparable co-workers. Earlier this month we saw the implementation of a law in the U.K. that would require companies with more than 250 workers to publish pay disparities between men and women.
Here in the U.S., improved wage transparency can lead to both higher and more equal wages. To get there, we need a collection of innovative and commonsense polices at the state and federal level. States can prohibit employers from discouraging wage discussions. At the federal level, we expand anti-trust protections for companies that share compensation surveys with workers and implement the Obama-era rule that would have allowed for better data collection through the Equal Employment Opportunity Commission. And private companies can play a part by making their wages transparent to their workers. After all, information is power.
Sarah Bianchi served in the Obama Administration as Deputy Assistant to the President for Economic Policy and as Director of Policy for the Vice President.
Ben Harris is Chief Editor of the Biden Forum and former chief economist to Vice President Biden.
