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Unintended Impacts of Pay Transparency Laws

The New York Times published an article examining the impact of laws requiring employers to include salary ranges in job postings. California's and Washington's laws just went into effect, while New York City and Colorado have had their laws in place for some time.

According to an economist at Harvard, pay transparency laws reduce wage gaps. In addition, public salary ranges may reduce the wages of high performers. Job candidates come in with clearer salary expectations, leading to their willingness to work for an amount in the posted range. Employers can see the salary ranges for competitors and know if they are paying competitive wages. Employees may feel more confident with their knowledge of upper salary limits for their positions and how much a company may be willing to negotiate.

A study of 100,000 academic salaries over 20 years showed when individuals can easily see public salaries, the gender gap improved by almost 50 percent. Moreover, the gap between the highest-performing academics and those who performed less well became smaller. One researcher said transparency seems to “dampen the performance-based incentives.” In addition, academic institutions that paid fairly fostered an "overall boost to productivity" and less turnover. One employment law attorney posited that individual bargaining power is weakened when individuals see the posted range and conclude they cannot ask for more. Workers believe employers will not increase their individual wages because it will lead to changes in the posted salary range.

On the flip side, some employers are finding ways around the transparency requirements by compensating through less public means, such as bonuses and benefits.