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Pay transparency, by Cullen and Pakzad-Hurson

Here's a contribution to the sometimes confusing debate about salary transparency.

''Equilibrium Effects of Pay Transparency in a Simple Labor Market"

Zoe B. Cullen and Bobak Pakzad-Hurson

Abstract: Public discourse on pay transparency has not focused on equilibrium effects:  how greater transparency  impacts  hiring  and  bargaining.   To  study  these  effects,  we  combine  a  dynamic  wage-bargaining model with unique data of temporary work arrangements that differ in their level of transparency.  Full transparency lowers wages by up to 25% and increases hiring by similar magnitudes.  Earnings inequality falls, and employer profits rise significantly.  A key intuition is high transparency commits employers to negotiating aggressively, because a highly paid worker’s salary affects  negotiations  with  other  workers.   We  discuss  implications  for  the  gender  wage  gap  and employers’ endogenous transparency choices.

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Here are some earlier posts that touch on related issues:

Wednesday, August 17, 2016

Salary negotiation: some Massachusetts market design

The NY Times has the story: Massachusetts Bans Employers From Asking Applicants About Previous Pay

Sunday, May 5, 2013

Market culture and salary discussions

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