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What’s the Skinny on Laws that Make Salaries Public?
00:15:59
What’s the Skinny on Laws that Make Salaries Public?
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- [00:00]
A
Foreign.
- [00:05]
B
Hey, optimists, this is Robin. You all seem to love our Thanksgiving prep episodes, so we have another, smaller treat to tide you over until season two drops in late January.
- [00:22]
So this one's an outtake from our third Q and A, which we did in October. You know, as sometimes happens on our show, Katherine's answer to this question kind of went on and on and on. So in the end, we wound up cutting this whole thing from that episode. But there were some really interesting economic issues here. So I reached out to Max, who's the guy who asked the question, which is about laws that require pay transparency, and he agreed to let us use it here. So thanks, Max. So before this starts, I need to issue two sort of corrections. This is kind of like retcon in advance. I guess that makes it not retroactive. It makes it, like, proactive continuity. So, anyway, there's. There's two things. First is you'll hear Catherine say that she is quite sure, quite, quite sure that Max was a student in her poverty class at the University of Maryland. I checked that with Max, and it turns out he was not her student. So Catherine's batting average on recognizing former students, zero. Second, there's a reference to a law in Wisconsin that eliminated collective bargaining for public sector employees. That law was signed in 2011, not 2010, as Catherine says. Normally, we would rerecord that and have Sophie fix it in post, but Catherine, as you know, is on family leave with her new baby. So you're going to get the raw slightly off by a year version. One last thing. If you want any Optimist economy gear before Christmas, be sure to order it by December 15th. I can tell you that the hat with our embroidered logo has been a big hit with our team. That's it from everyone here at Optimist Economy. We hope you have a wonderful holiday season. Enjoy our little mini show, which we call the Max Show.
- [02:02]
This is from Max Tejera in Arlington, Virginia.
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A
I don't know how many there are, but I'm like, I'm in the upper 90s of confidence that Max was a student in my poverty class in Maryland. What is Max's question?
- [02:15]
B
Okay. I did my graduate thesis on Colorado's pay transparency law, which requires pay ranges and job postings. I found some evidence to suggest it reduced the gender wage gap by approximately $0.08 on the dollar. The optimist in me wants to believe that pay transparency laws like this could also empower all workers with information to negotiate harder and lift wages as a result. However, there is some Dissenting opinion from a much more respected labor economist than me that were recently featured on a prominent economics podcast, which I'm just going to say was not ours.
- [02:46]
A
Not ours. And I don't know if we're prominent.
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B
They argue that due to collective negotiation frameworks between employers and groups of employees, introducing some forms of pay transparency can actually reduce wages. So I'm wondering, what can we say about the different forms of pay transparency in raising or lowering wages? How much are state level lawmakers hitting the mark by pushing these policies as a way to reduce gender wage gaps? And why should I temper my optimism and not run down the mall shouting at the Capitol to make this federal policy?
- [03:17]
A
Okay, so Max thinks because he was in my class, he gets a whole episode.
- [03:23]
All right, so the reason why we think pay transparency laws work is because they give power to the worker, and in this case, power in the form of information. If I know how much the job title is posted for, then I can ask for more. That's one story. You're giving power to workers.
- [03:43]
B
So I'm applying for a job. The job is like somebody's posted a job, they say that's going to pay $85,000. I could do one of two things. I could apply for that job, but I might also say I could do that job. I should be making $85,000 and go back to my own employer.
- [03:57]
A
Yes. The other thing it can do is that it's a queuing mechanism where when you apply for a job and you get offered a job, most people will tell you you negotiate on salary or something. And so if that's posted, you're basically queued into what you can ask for of like the Max, They'. This. So I'm going to ask for 2,000 less and an extra holiday at Christmas. And that can help you in bargaining overall, not just in knowing what you can earn, but knowing what they're willing to pay as part of a broader bargaining question. Okay, okay. The other kind of aspect of this is that it would hurt workers for a couple of reasons. One, it would lead to what we call pay compression. And two, it if someone pushes up the wage of an individual position, that then gets reflected in transparency. It could push up the wage for a bunch of workers. So a lot of this depends on whether or not you're thinking of pay transparency, of operating outside of the firm to the potential worker or inside the firm to the current worker, and how this information could be internalized and used on that level. Like the outside worker. This is very much like a Kind of a win win approach of like, we get more power and we can ask for more. But for the workers on the inside, you could find out that you don't make that much money relative to a new position and so you ask for more. If employers wanted to like squash that, they would end up just paying everybody less. So there's some studies like Max's that have found big gains. On the information side, people are cued into what they should ask for. This affects people who tend to make less money, like women, you see their earnings go up. Other people have found work that have seen wage compression and declines. Basically on the within firm side that once firms have to post to all of their current employees what certain positions are, they are then incentivized to pay less to not trigger wage spikes within their firm. So there's this outside firm, inside firm effect of pay transparency.
- [05:58]
B
You're saying, so I'm a whatever business and I don't want my internal people asking for raises. So I don't really tip my hand as to what I would be willing to pay when I posted an external job.
- [06:11]
A
Yeah. Or I'll end up paying less than I would have if had I been able to keep it a secret from the rest of my employees.
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B
Okay, is there a third dynamic here where employers that are competing for workers then can also see what their competition is paying and therefore not maybe offer as much as they would?
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A
Yes. Right. It could be that they offer more or they offer less. You're basically interfering into the market mechanisms.
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B
Or offer what other people are offering.
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A
Yeah, like I'm Microsoft, Apple is down the street and I see that like for a position that I'm offering 150,000, they're offering 180. So now we, we're going to adjust and they're going to offer less and maybe I'll offer more.
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B
Right.
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A
And the effect of these laws really vary based on like kind of the lens that you're looking at. So one of the kind of issues in rolling out things like pay transparency is that we're getting a lot of data from the law going into effect rather than the law necessarily being there like I would expect if you had a pay. Yeah, if you had a pay transparency law that is 15 months old. Very different effects on the labor market than pay transparency laws that are like 15 years old. And the market adjusting is gonna have both good and bad consequences where like you might see a bunch of women get raises. Now they have no choice in knowing that they actually made a lot less. Or you might See some firms react, like, really harshly and try to suppress wages of everyone in their firm because they don't want people to know what they can pay, and they don't want their own workers to have that power. I see a lot of it as part of the, like, messy transition. The question for me is, is it a better world for workers and businesses to have some proximity of pay transparency for certain jobs?
- [08:02]
I'm inclined to say yes, but I can see it both ways. I can see it being both, like, good, and that it would reduce pay disparities between workers who have unequal bargaining positions, like women and black people or Hispanic people or people with accents. But I can also see that you would have this overall wage compression kind of result and that you would have lower wages on average. And they could both be true.
- [08:31]
B
That can be what less disparity looks like.
- [08:33]
A
That can be what less disparity looks like. So two or three, three things to bring up that aren't pay transparency. That can kind of help conceptualize what's going on here. One is that In Wisconsin in 2010, the governorship of Scott Walker and the Republican legislature ended collective bargaining.
- [08:54]
B
Bargaining, yeah.
- [08:55]
A
And really went after teachers unions. And as a result, teachers who had previously been under a collective bargaining agreement were then left to openly negotiate for their wages on an individual level. So a researcher, an economist, studied what happened to the wages of teachers when they went from a collective bargaining to an individual bargaining model. And what she found was. I mean, she found a lot of stuff, but one of them was that women almost immediately started to see a pay gap emerge with female teachers and male teachers, but that the nature of the gap depended on the gender of the superintendent or the principal, whichever one they were negotiating with. If it was like a man was overseeing the individual bargaining, pay gap emerged. If it was a woman overseeing the individual bargaining, much smaller pay gap emerged. It gives you a sense of just how much discretion there is from the bargaining table that can be affected by your gender and how aggressive people are in certain situations. I mean, genuinely thought that men ask for more, but more likely the case, women are rejected more when they ask for more, and that men are willing to ask for a lot more when it's another man as opposed to a woman. And so you think of a salary transparency law as a way to almost like, turn a lot of that off, the way that a collective bargaining agreement would, but to a smaller degree, because you're just taking kind of like a feature of collective bargaining and putting it into the private market. That's like, my first aside, second aside is that a lot of paid transparency results kind of remind me of Ban the Box. So in many job applications, especially for service jobs, there's a box that says, check if you have a felony history. And this makes it incredibly difficult for formerly incarcerated persons to find employment. And the discrimination against formerly incarcerated persons is incredible in our labor market, very well documented. So there was a movement to just take this box off and only have it apply for positions in which it was relevant.
- [11:04]
Well, you know, a lot of economists studied what happened after Ban the Box went into effect, and they found what they call, quote, unquote, statistical discrimination, which is that now that I'm an employer and I'm looking for someone to work for me and I can't single out which of the people applying are felons, I'm now just going to rely on stereotypes and discrimination to assume certain people, AKA black men, are felons. And one of the big results of Ban the Box was that it hurt black men who didn't have a felony history.
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Not because Ban the box was a way to signal that you had a felony history, but it was really a way to signal in a world that discriminates against black men that you didn't have a felony history. And so people were like, once an economist comes to a finding, you want to just, like, shake their hand, thank them, and, like, send them out the door. Because they were like, so, yeah, we need to put the box back in. And it's like, hang on.
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Hang on. It is not. Let's put the box back. It is. We have a much bigger problem of discrimination against black men than we had possibly realized. And, like, that is the big finding.
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B
And of course, a lot of economists reinstate.
- [12:21]
A
Let's get that box on back. And so I think of something like pay transparency laws of, like, yeah, you're going to put in, like, we need to say what people are paid, and there's going to be some company that, like, lays off their top 10% staff and then rehires again at lower wages. But, like, that is indicative of a different problem, which is that workers have very dwindling power in the labor market. And Labor's share of U.S. income has been declining for 50 years. Like, you gotta focus on the big problem driving these results and not the small changes in behavior that policy dictates and say, like, oh, well, then let's not make the small change in policy behavior of like, no, no, no, no, no. Keep your eye on the ball. There is a big problem here. Workers do not have enough power and we are not making enough money. This thing is not a cure all, but we've learned a lot from both where it succeeded and where it's failed.
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B
Did you have a third aside?
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A
I did, but it's. I feel like. I feel like I'm playing favorites here. I don't want to say Max was a favorite in class, but he did show up on time and he asked good questions. So, like, the other way to think about wages and compression is some people bring up the pay compression of the federal government as a negative example as to why you don't want to have pay compression because you lose talented people because the amount of money that you could earn in the private sector for a highly talented person isn't met by the public sector. And so this comes up a lot. And people bring this up as the example of why pay compression is bad. I think that those results are really overblown. The problem with federal employment is pay is often not what drives people from federal employment. Like, when they took the job, they could have made more money elsewhere. What makes the job hard are things like a terrible administration, a political appointee that doesn't know what he's doing, not having a political appointee for two to four years at a time, incredibly high turnover at the top with shifting priorities, and way too many political appointees that run agencies. Those tend to hit federal employees so much harder. But because they happen to have pay compression, federal employees are always held up as the example of, like, this is why you don't want to have pay compression as opposed to, like, maybe this is why you need decent leadership.
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B
This is a correlation is not causation.
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A
Yeah, yeah. I mean, what the federal government doesn't have and what people who bring up the evils of pay compression amongst federal workers never want to bring up also is that they're very good at compressing wages that are typically deeply different because of race or gender in the private sector. Like pay gaps between men and women, between black people and white people, between Hispanic people and white people in the federal government, I mean, they are so small relative to the private sector that they go closer to zero than they go closer to what the private sector puts forward. So, like, you put up these, like, wage compression statistics of like, this is why the federal government has a bunch of mediocre employees. And it's like, well, they also don't give white men a 25% bonus just for being. Just for being a white man in the private sector. So there's so much more nuance to wages, and people see the story that they want to see.
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That is what you get from this, is that they will find the story they want because wages and working conditions, they're all so nuanced.
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Okay, so now we should go on to another question. Okay, the Max show is over. Glad to see you've got a good job, Max.