Pay Transparency Laws Can Help Fix The Wage Gap But Not Erase It

Coming soon to a job posting near you: Knowing how much it pays.Getty Images

A series of local and state laws, both newly adopted and soon to be in effect, will force companies to divulge what a job pays when posting an open position. Besides being common sense, the intent of these laws is to shrink the persistent wage gap that divides white men from women and people of color. Lowering the pay gap would be an important step forward for equality in the US, affecting everything from Americans’ quality of life to how they see themselves.

But while pay transparency is a much-needed improvement, a lot more is needed to truly create balance for all Americans. In the US, women and people of color get paid less than white men, regardless of job or experience. Pay gaps often begin at the start of careers, then compound over a lifetime as women and people of color are less likely to get raises. A variety of other factors contribute to the gap as well, like the motherhood penalty, wherein women who take time off paid work to care for kids are paid nearly 40 percent less than those who don’t.

There’s occupational segregation, in which jobs that are filled predominantly by women or people of color, like home health aides or food service workers, are paid less.  (The pay and prestige of computer science, for example, rose only as more men entered the field.) Women and people of color are also seriously underrepresented in leadership positions, which are paid the most. In sum, that means the median hourly wage for women is 86 cents per hour for every dollar a man makes. Black women make 68 cents.

There’s been little progress on closing the pay gap in the last three decades. Enter this new spate of pay transparency laws. “Transparency is one of the leading tools we’ve identified for closing the wage gap,” Andrea Johnson, director of state policy at the National Women’s Law Center, told Recode. “It is absolutely crucial for both increasing worker power and employer accountability.”

While some of the new pay transparency laws protect workers’ rights to discuss pay without retaliation, others go further. Laws that prevent employers from asking candidates about their salary histories, which have been cropping up from Connecticut to Hawaii in recent years, keep past pay inequality from informing how much a person makes at their next job.

Most promising are laws that require employers to post the pay range for a job when they first start recruiting. One such law went into effect in Colorado in 2021. One in New York City goes into effect in November, while California’s and Washington’s go into effect in January. New York’s governor is expected to soon sign a state-wide law of this nature that would go into effect next year.

Disclosing a pay range lessens the likelihood implicit bias will creep into new salaries because it changes the need for negotiating salary, which typically works out unfavorably for women and people of color. When women ask for raises (which they do as much as men), for example, they’re simply less likely to get them.

“Whenever we take negotiation out or reduce the role of individual negotiation, pay-setting tends to get more equal,” Ariane Hegewisch, senior research fellow at the Institute for Women’s Policy Research, told Recode.

The very act of establishing a pay range for a position forces companies to evaluate their compensation practices and potentially fix disparities between existing employees. Finally, pay transparency for new roles would allow already-employed people to negotiate for better pay if they’re making less than others in similar positions. Relying on workers to identify and negotiate the difference is obviously imperfect, but it will certainly help.

“It’s very simple: The more data that’s out there, the better positioned talent can be to know how much they’re worth,” said Josh Brenner, CEO of Hired, a hiring platform that releases an annual study on the wage gap in tech. The company’s software also notifies employers when it detects bias in their salary offers (Hired said the nudge results in updated salary offers about 5 percent of the time, and those offers are on average 11 percent higher).

While research on the effects of pay range laws is new and therefore limited, experts point to the much smaller pay gaps in the public sector and at union jobs, where salaries are more transparent and regimented. For transparency efforts to be successful, the ranges can’t be too large and companies have to be actively penalized for not following pay transparency rules.

Research on Colorado’s new pay transparency law showed that the fraction of job postings with salary information has so far grown 30 percentage points since the law went into effect in 2021, but more compliance is expected over time. Data shared by compensation software company Payscale showed that employees working at companies with pay transparency make 7 percent more than employees with the same job and qualifications at companies without that transparency.

And although these laws are being set at the city and state level for now, it’s possible their effects will reverberate outside of those municipalities, influencing companies to voluntarily share pay information, whether it’s to simplify job posting or to attract talent in a tight hiring market.

“I would say about half of our customers came to us without any requirements on the legal end that they have to post,” said Payscale senior corporate attorney Lulu Seikaly, referring to company inquiries about setting pay ranges. “They know with states like California, Washington, New York, and Colorado being forced to post their salary ranges, they’re going to be also forced to post their salary ranges just to get the talent in the door.”

Other strategies to close the pay gap

Extending these pay transparency laws to existing positions — rather than just new job postings — and to more companies in more states would be even more effective. But pay transparency alone won’t completely close the pay gap. “There is no silver bullet,” Elise Gould, senior economist at the Economic Policy Institute, said. “But I think pay transparency moves us in the right direction.”

While the experts Recode interviewed for this story expect that pay transparency laws will certainly lessen the pay gap, they don’t think that will mean women and people of color will all of a sudden have truly equal pay. As we know, the pay gap is caused by a number of issues, so it will likely take a variety of tactics to solve it. Here are some that experts told us would help.

The National Academies of Sciences, Engineering, and Medicine, in an independent review of the data collection, recently found, unsurprisingly, that doing so is a key tool to combat pay discrimination, and recommended that the EEOC broaden and strengthen its data collection (the Trump administration stopped the practice but it’s expected to return under Biden).

Going a step further and making that data publicly available could do more to compel companies to rectify their wage gaps, rather than waiting for discrimination charges to make them do so. Additionally, better funding for the EEOC would make the organization better able to address the pay discrimination complaints they handle.

Raise the minimum wage: Part of the reason for the pay gap is that women and people of color are overrepresented in the lowest-paid industries. Therefore, raising the federal minimum wage, which has been stuck at $7.25 since 2009, would disproportionately help women and people of color and would go a long way toward lessening their pay gap.

Affordable, high-quality child care: There’s a child care crisis in America, and it deeply hurts the career prospects of women, who shoulder more child care duties. Without adequate child care, women will continue to be pushed out of the workforce and their wages will continue to suffer. The sector needs more government investment, which will in turn improve the personal and working lives of women.

Make it easier to unionize: Unions help rationalize pay bands and lower the wage gap, but it is incredibly difficult to unionize in the US. Passing the PRO Act, which is stalled in the Senate after passing the House, would make the unionization process easier, and more unions means more pay equality.

Of course, all of this is easier said than done, and it will take a long time for the wage gap to disappear. But the new transparency laws show that progress is possible, and so are more changes on the horizon.

By:

Source: Pay transparency laws can help fix the wage gap — but not erase it – Vox

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