To improve equity, more US states and cities are requiring companies to disclose wage data. However, it is not a complete solution to closing wage disparities.
California has become the latest US state to require employers to publish detailed salary information in an effort to reduce gender and other wage disparities and improve worker fairness.
The law, signed by Governor Gavin Newsom on September 27, requires any employer with at least 15 employees to include a pay scale with any job advertisement. It also requires all businesses with more than 100 employees to submit an annual pay data report to California’s Civil Rights Department, which includes a breakdown of employees by race, ethnicity, and gender, as well as the median and mean hourly pay rate for each group.
California joins a slew of other states and cities in enacting the legislation. or are expected to pass – legislation aimed at shedding light on pay practises. Colorado’s Equal Pay for Equal Work Act went into effect in 2021, while New York City’s Pay Transparency Law is expected to pass this November. Other states, including Maryland, already require pay disclosure for job postings upon request, and laws in Connecticut, Nevada, and Rhode Island require compensation levels to be disclosed during the hiring process.
Proponents of pay-transparency legislation argue that it fosters accountability, and that addressing pay disparities in individual organisations begins with determining how severe they are. Overall, the picture is clear: women working full-time in the United States continue to earn approximately 83% of what men do, a figure that has remained stable in recent years, and black and Hispanic women earn less than white women. Other pay disparities, such as those for workers with disabilities and LGBTQ+ workers, remain.
Many factors contribute to these disparities; for example, women’s careers are more likely to be disrupted by childcare responsibilities. Women are also more likely to work in low-wage industries. However, companies can also offer specific groups of employees, including women – Women of colour, in particular, earn lower wages than white men. According to research, women and minority workers tend to ask for less money, which could be mitigated if pay ranges are published on job advertisements. Meanwhile, providing a snapshot of pay rates across a company’s workforce may provide evidence for how different groups of workers progress within companies and whether there is an imbalance.
Experts say that while many of the newest laws have been in the works for some time, the mood within the labour force in the last two years, combined with the expectations of today’s younger workers, have exerted pressure on lawmakers to act. But while these laws could level the employment playing field somewhat, and even prompt firms unaffected by such legislation to follow suit, they are just one step towards addressing a wage-gap problem that is as entrenched as it is systemic.
‘A key tool to close wage gaps’
Pay opacity is a core cultural tenet of the labour market in many countries, including the United States, and has traditionally benefited employers. It has allowed companies to maintain stagnant compensation even in the face of inflation or rising market rates for talent, and it has prevented individuals from accessing reference points when it comes to the fairness of their own pay cheque. Indeed, many business leaders have historically advocated for pay to remain private because a culture of salary secrecy can keep companies’ wage bills low, and transparency laws can expose organisations to lawsuits and fines.
However, some businesses no longer have a choice. Glassdoor’s lead economist, Daniel Zhao, According to a San Francisco-based company that collects and analyses pay data for companies all over the world, the recent rise in pay transparency legislation is part of a long-term wave of pressure to improve transparency – and thus fairness – in the job market.
This trend, he says, has been accelerated by technology and especially by salary-sharing websites like Glassdoor, which pool information from workers across industries, geographies and seniority levels. These platforms, says Zhao, have “helped foster an expectation and culture of transparency, especially among younger workers entering the workforce today”.
The current job market dynamics – low unemployment and labour shortages across many industries – have most likely contributed to a push for greater transparency. Workers are feeling more empowered to speak up, while businesses are having to work harder to attract talent. However, Pavlina Draganova, who works for Organise, a UK-based online platform that advocates for pay transparency and fair working conditions, believes that regardless of the economic climate, the case for pay transparency is clear. “Over the last few decades, there has been mounting evidence that pay transparency can be a key tool in closing gender and racial pay gaps, making this an increasingly appealing option for legislators,” she says.
In May, for example, Academics published a paper in 2006 analysing the impact of Denmark’s pay transparency legislation, which requires companies with more than 35 employees to report salary data broken down by gender for employee groups large enough to protect an individual’s anonymity. They discovered that the gender pay gap narrowed in the companies affected by the new laws, while the firms’ profitability remained unaffected. Similar findings have been reached in studies conducted in Canada and the United Kingdom.
Pay transparency can be a key tool in closing gender and racial pay gaps, making this an increasingly appealing option for legislators – Pavlina Draganova
Zhao points out there are other potential advantages of pay transparency beyond reducing wage gaps. In hiring, for example, being open about pay eradicates information asymmetries – situations in which a prospective employee’s expectations for pay differs wildly from an employer’s. “Pay transparency can help make the job search more efficient for job seekers and employers, letting both sides skip interviews when expectations about pay are too far apart,” he says.
In the short-term, he believes, increased pay transparency might lead to higher turnover by showing employees what their skills are actually worth on the open market; it might give some workers who discover they are underpaid more confidence to quit. But in the long run, adds Zhao, a less opaque market will likely lead to less turnover and more stability because of higher retention rates, which will benefit all.
No silver bullet
Despite the potential benefits of pay transparency regulation, experts warn that it should not be viewed as a panacea for making the labour market more equitable in general.
For one thing, publishing pay ranges may still result in some groups of candidates, such as minorities, being offered salaries at the bottom of a stated range while other groups of candidates, such as white men, negotiating top-of-the-range pay. In the United Kingdom, where all companies with 250 or more employees have been required to publish an annual gender pay gap report since 2017, some institutions have exploited loopholes to understate their wage disparities. There is also no conclusive evidence of a causal relationship: that all companies that report their pay gaps accurately are necessarily more effective at making their workplaces fairer and more equitable. “This could be a catalyst for positive change for organisations,” says Mabel Abraham, associate professor of business at Columbia Business School in New York City. However, she adds, it will not result in a uniform closing of all pay gaps and the abolition of inequality. Furthermore, closing a pay gap should never be viewed as a perfect proxy for creating a more equitable labour force
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