Is Pay Transparency Good?

Zoe B. Cullen

No 31060, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: J08 J31 J78 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-hrm, nep-lma and nep-mac
Note: LS PE
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Citations: View citations in EconPapers (8)

Published as Zoë Cullen, 2024. "Is Pay Transparency Good?," Journal of Economic Perspectives, vol 38(1), pages 153-180.

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