Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Is Pay Transparency Good?
Journal of Economic Perspectives
vol. 38,
no. 1, Winter 2024
(pp. 153–80)
(Complimentary)
Abstract
Countries around the world are enacting pay transparency policies to combat pay discrimination. Since 2000, 71 percent of OECD countries have done so. Most are enacting transparency horizontally, revealing pay between coworkers doing similar work within a firm. While these policies have narrowed coworker wage gaps, they have also led 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 effects of pay transparency, and open questions.Citation
Cullen, Zoë. 2024. "Is Pay Transparency Good?" Journal of Economic Perspectives, 38 (1): 153–80. DOI: 10.1257/jep.38.1.153Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J71 Labor Discrimination
- K31 Labor Law
- M52 Personnel Economics: Compensation and Compensation Methods and Their Effects
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