What happens when pay is transparent?
Lower earners may suffer, but the gender gap narrows.
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Happiness decreases at the bottom of the curve.
- Income transparency has been shown to widen the gap in happiness between richer and poorer individuals (Perez-Truglia 2020). This gap may be asymmetric: transparency decreases job satisfaction among below-median workers, but those earning above the median report no higher satisfaction (Card et al 2012).
Overall wages go down.
- After workers were able to inquire about the salaries of their coworkers, overall wages went down by 2 percent, but declines are progressively smaller in occupations with higher unionization rates. This suggests that transparency means that transparency reduces the individual bargaining power of workers because employers can credibly claim that any raises would need to apply to all (Cullen et al 2021).
Workers' effort can increase or decrease depending on context.
- Observed pay inequality reduced output and attendance only when coworkers' productivity was difficult to observe (Breza et al 2018). This suggests that workers are sensitive to whether pay inequality is justified.
- Finding out your boss makes more than you thought induced workers to try harder via increased motivation, whereas finding out your peers made more than you thought makes you try less hard (Cullen and Perez-Truglia 2022).
But the gender pay gap seems to narrow.
- In Canadian universities, the gender gap was reduced by 20-40 percent (Baker et al, forthcoming)
- In Denmark, the gender gap was reduced by 13 percent, primarily due to slowing wage growth for male employees (Bennedsen et al, 2022)
- In Austria, the gender gap was reduced among newly hired workers (Boheim and Gust, 2021), although it remained unchanged among existing workers (Gulyas et al, forthcoming).
- Among UK firms, the gender gap was reduced by 19 percent, which was driven by a decline in male wages (Blundell 2021). Another analysis suggests that employee composition changed as well: women were 5 percent more likely to be hired in above-median-wage occupations (Duchini et al 2020). Meanwhile, at UK universities, the gender pay gap was shown to decrease by only 4 percent, which was driven by senior females negotiating higher salaries (Gamage et al, 2020).