Is Pay Transparency Good? (and for what, and for whom?) by Zoë Cullen

 Over the course of my academic career I have taught at a state university where salaries were public, a private university in which the department chair knew everyone's salary, another private university in which only the dean knew everyone's salary, and one in which I'm not sure exactly who knows what.  Here's a study (not focused on universities) focused on the larger effects of information about pay.

Is Pay Transparency Good?  by  Zoë Cullen, Journal of Economic Perspectives—Volume 38, Number 1—Winter 2024—Pages 153–180

"To understand the economics behind pay transparency, it is useful to categorize the types of pay transparency into three buckets: horizontal pay transparency, where coworkers at the same organization are informed of each other’s pay (the Lilly Ledbetter case); vertical transparency, where transparency extends to different layers of seniority within an organization; and cross-firm transparency, where workers and/or employers have access to the pay information of competing firms and organizations.

"Horizontal pay transparency gained traction politically because it could hold a bad actor accountable for “unfair” pay differences, as in the Lilly Ledbetter case. In specific situations where roles are clearly defined, this kind of pay transparency could be a starting point to identify discriminatory gaps in pay that are prohibited by the Equal Pay Act of 1963 and related laws. Research has shown that employers have responded to horizontal pay transparency by achieving equality through lower average pay overall.

...

"In contrast, vertical pay transparency and cross-firm pay transparency, while less equipped to hold specific organizations accountable for discrimination, have proven capable of raising productivity and raising wages by reducing information frictions in the labor market. Vertical pay transparency increases workers’ information about what they could earn if they were to be promoted. Because employees typically underestimate the steepness of financial rewards from promotion, vertical transparency raises expectations about potential earnings and has proven to boost effort and productivity in meritocratic environments. Cross-firm pay transparency, achieved through salary benchmarks like Glassdoor or salary ranges in job posts, informs prospective candidates about which employers pay more than others and leads applicants, especially those underpaid, to redirect their search toward higher paying firms and more favorable pay negotiations. Cross-firm pay transparency policies have also informed firms what their competitors are paying, increasing competition and putting upward pressure on wages. These pay transparency policies shine the light outward, away from coworkers under the same employer, toward vertical and cross-firm pay differences. 

...

"The pay transparency lever is, in the end, stunningly cheap and powerful. However, this comes with a warning. Among the lessons learned in the study of pay transparency is that more information is not always better. Thus, we describe an open field for pay transparency studies to identify where greater and more equal access to information can improve economic outcomes."

Hiring former Supreme Court Clerks (is expensive)

 The Washington Post has the story:

Clerks for hire: The Supreme Court recruiting race. Supreme Court clerks are offered bonuses of up to $500,000 to join law firms  By Tobi Raji

"Only around three dozen law clerks work for the justices during each one-year term, which means these lawyers — and their unparalleled knowledge of the court — are in incredibly high demand. Jones Day, the leader in the race to recruit and hire as many clerks as possible, announced last month that it snagged 8 law clerks, all of whom worked for conservative justices during the term that began in October 2022.

...

"The recruitment is so competitive that signing bonuses for Supreme Court law clerks have reached a new high — $500,000, according to a spokeswoman for law firm Gibson, Dunn & Crutcher. Such a sum far exceeds the salaries paid to the justices — the clerks’ former bosses — who are paid slightly less than $300,000 a year.

"The bonuses — alongside annual starting salaries of more than $200,000, which alone are nearly triple Americans’ median household income — are the product of a decades-long competition among elite law firms seeking any advantage they can find in arguing high-profile cases before the Supreme Court. They view the clerks’ experience and knowledge of the court as profitable assets that attract clients in a highly specialized sector of the law, and they see clerkships as effective filtering devices in identifying promising hires, according to interviews with former Supreme Court clerks, lawyers and experts."

Equilibrium effects of pay transparency--by Zoe Cullen and Bobby Pakzad-Hurson

 From the current issue of Econometrica, the lowdown on pay transparency:

Cullen, Zoe B., and Bobak Pakzad‐Hurson. "Equilibrium effects of pay transparency." Econometrica 91, no. 3 (2023): 765-802.

"Abstract: The discourse around pay transparency has focused on partial equilibrium effects: how workers rectify pay inequities through informed renegotiation. We investigate how employers respond in equilibrium. We study a model of bargaining under two-sided incomplete information. Our model predicts that transparency reduces the individual bargaining power of workers, leading to lower average wages. A key insight is that employers credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others. When workers have low individual bargaining power, pay transparency has a muted effect. We test our model with an event-study analysis of U.S. state-level laws protecting the right of private sector workers to communicate salary information with their coworkers. Consistent with our theoretical predictions, transparency laws empirically lead wages to decline by approximately 2%, and wage declines are smallest in magnitude when workers have low individual bargaining power."

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Earlier:

Wednesday, March 29, 2023

Pay transparency, horizontally, vertically, and across firms, by Zoe Cullen

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

Pay Transparency in New York City as the new law begins to take effect

 Here's a report from Glassdoor Economic Research:

A First Glimpse into the Impact of Pay Transparency in New York City by Daniel Zhao

"On November 1, New York City’s pay transparency law went into effect, requiring job listings to include salary ranges. While the move represents an opportunity for job seekers to get greater pay transparency, high-profile errors as the new law went into effect have raised concerns about the efficacy of the law. With similar laws going into effect on January 1, 2023 in California and Washington State, we examined Glassdoor data to give an early view into how employers are grappling with pay transparency in New York City.

"Key Findings

"Pay ranges are being published on the majority of active job listings. 60 percent of job listings in New York City have employer-provided salaries as of November 12, and there are hints of a spillover effect to neighboring states.

"Ranges have widened significantly, but remain relatively narrow. The median width of salary ranges has widened from $10,000 in October to as wide as $20,000 so far in November. Less than 3 percent of daily active job listings in November have a salary range wider than $100,000.

"Professional services like Financial Services, Information Technology and Pharmaceutical & Biotechnology are the slowest to add pay ranges to their pay ranges. This may mean enforcing pay transparency will matter more in these higher-salary industries than in lower-wage industries."

Economics at the extremes (of gender and salary): UC Berkeley report

 This report includes two figures in which the discipline of Economics is near one of the extremes.  The regression models on gender and salaries are interesting too.

UC BERKELEY FACULTY SALARY EQUITY STUDY, ANNUAL UPDATE, 2020  OFFICE OF THE VICE PROVOST FOR THE FACULTY, DECEMBER 2020

Pay transparency in the NY Times

An article on the virtues of pay transparency in the NY Times publishes the salaries of all Times editors, reporters and columnists... just kidding.  But it does report on recent research about the effects of pay transparency:

Breaking the Salary Sharing Taboo
Transparency about salaries can make workplaces more equitable, especially for women and people of color. Why are so few Americans willing to open up?
By Susan Dominus

The article mentions several academic studies

Here's one from a forthcoming paper

"About a decade ago, a naturally occurring social experiment took place in Norway that revealed how people react when they are given the opportunity to learn not just a co-worker’s income but the salary of every citizen in the country. Key information from tax returns in Norway has been public since the 19th century, available to anyone willing to wait in line at City Hall and scour tax records. But that understandable interest in other people’s finances became something of a national obsession in 2001, when newspapers first started making the information searchable online. By 2009, one newspaper offered an app — instantly one of the country’s most downloaded — that allowed Facebook users to see leader boards that ranked friends’ salaries from highest to lowest. The app also created maps that allowed users to see the pay of all their neighbors. In 2010, during the first week that the most recent year’s information became available, Norwegians were Googling “skattelister” — tax lists — more than “YouTube,” according to data analyzed by Ricardo Perez-Truglia, now an assistant professor of economics at the U.C.L.A. Anderson School of Management; during that same period, Norwegians were scanning other people’s income more often than they were checking the weather. There were anecdotal reports of students’ being bullied for their families’ poverty, and increasingly, officials became uncomfortable with what the head of the Norwegian Tax Administration called the “peeping Tom” phenomenon (the media called it “tax porn”). In 2014, the law changed so that individuals could still access this public information — but the person whose information they were seeking would know who sought it. Salary searches plummeted, suggesting that Norwegian taboos around discussing pay are not, in the end, all that different from those in America.

Perez-Truglia realized he could use the case of the skattelister to determine the effect of that short window of widespread transparency on well-being, using data from a happiness survey that has been conducted in Norway since 1985. Perez-Truglia found that the newfound accessibility of other people’s pay led to a significant increase in the happiness gap: Higher-income earners were happier than they were before the information was widely available, and lower-income workers were less happy. (There was no change in happiness levels in the survey respondents with more limited access to the internet, further evidence that it was the availability of the skattelister that was having an influence on the survey results.)"

and here's the paper:
[Perez-Truglia, R. (2019). The Effects of Income Transparency on Well-Being: Evidence from a Natural Experiment. American Economic Review, forthcoming. [ Ungated] [ Slides]]
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Here's a link and an earlier post about another of the papers mentioned in the article,

Cullen, Zoë B., and Bobak Pakzad-Hurson. "Equilibrium Effects of Pay Transparency in a Simple Labor Market." Working Paper, April 2019. (Formerly two papers, "Equal Work for Unequal Pay" and "Is Pay Transparency Good?" Selected as Exemplary Applied Modeling Paper at EC '19.)

Friday, August 24, 2018

Pay transparency, by Cullen and Pakzad-Hurson

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

Salaries of new lawyers at big law firms are on the move

After a long period of stagnation, salaries of lawyers in associate positions at large law firms recently started to move, and are climbing (probably in lockstep) once again.

Above the Law has the story:
New York To $190K — No, Cravath Didn’t Make The First Move
The next associate salary war is beginning.

and here:
Salary Wars Scorecard: Which Firms Have Announced Raises? (2018)

and here

The Billion-Dollar Biglaw Firms That Have NOT Raised Associate Salaries

See earlier posts:

Sunday, July 3, 2016

The market for first year lawyers: some top salaries are moving to 180K

Wednesday, August 15, 2012

Salaries of new law grads

Solidarity between doctors and nurses in Quebec

Canadian doctors--at least some of them--are different.
The Washington Post has the story.

Hundreds of Canadian doctors demand lower salaries

"In a move that can only be described as utterly Canadian, hundreds of doctors in Quebec are protesting their pay raises, saying they already make too much money.

"As of Wednesday afternoon, more than 700 physicians, residents and medical students from the Canadian province had signed an online petition asking for their pay raises to be canceled. A group named Medecins Quebecois Pour le Regime (MQRP), which represents Quebec doctors and advocates for public health, started the petition Feb. 25.

“We, Quebec doctors who believe in a strong public system, oppose the recent salary increases negotiated by our medical federations,” the petition reads in French.

"The physicians group said it could not in good conscience accept pay raises when working conditions remained difficult for others in their profession — including nurses and clerks — and while patients “live with the lack of access to required services because of drastic cuts in recent years.”

"A nurses union in Quebec has in recent months pushed the government to address a nursing shortage, seeking a law that would cap the number of patients a nurse could see. The union said its members were increasingly being overworked, and nurses across the province have held several sit-ins in recent months to push for better working conditions."

Medical careers as investments

From Statnews.com:

How much do doctors really make? Compare your salary to various specialties 

Salary negotiation: some Massachusetts market design

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

"In a groundbreaking effort to close the wage gap between men and women, Massachusetts has become the first state to bar employers from asking about applicants’ salaries before making them job offers.

"The new law will require hiring managers to offer a compensation figure upfront — based on what the applicant’s worth is to the company, rather than on what he or she made at a previous position.
...
"No longer will job seekers be compelled to disclose their salary or wages at their current or previous jobs — which often leaves applicants with the nagging suspicion that they might have been offered more money if the earlier figure had been higher. Job candidates will still be allowed to volunteer their salary information.

"The Massachusetts law, which will take effect in July 2018, takes aim at the subtle factors that often play into compensation decisions. Companies will not be allowed to prohibit their workers from telling others how much they are paid, a move that advocates say can increase salary transparency and help employees uncover disparities."
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It will be interesting to see how this plays out. The intention is to free people from being forever constrained by their salary history. Employers will be worried about the winner's curse...

The market for first year lawyers: some top salaries are moving to 180K

After years at which top salaries for brand new lawyers at big firms were concentrated at $160,000, the magic number seems to be jumping to $180K.

See Above the Law: http://abovethelaw.com/2016/06/salary-wars-scorecard-which-firms-have-announced-raises/

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See this earlier post: Wednesday, August 15, 2012 Salaries of new law grads

WSJ channels Nikhil Agarwal on salaries of medical residents

Here’s the Real Reason Medical Residents Make Just $47,000 a Year, Study Suggests

"In an upcoming paper in the American Economic Review, Dr. Agarwal argues thatstudents are willing to take a hefty pay cut to end up at a prestigious residency, and this lowers resident salaries by an average of $23,000 annually for all programs. In 2010, the average medical resident made about $47,000 a year, while physician assistants made about $86,000.

“The matching algorithm results in very efficient allocations and a very timely and well-functional market, but people have been resistant to using it because of this issue–they fear that it might negatively affect salaries,” Dr. Agarwal said. “After this paper, we learned that the fact that salaries are low in the medical residency market has nothing to do with the algorithm itself. Rather, it’s because of fundamental economic forces, like the limited number of positions at fantastic hospitals.”

In the medical-residency market, students and residency programs both rank their top choices, and are then matched using this algorithm. In 2012, Alvin Roth and Lloyd Shapley received the Nobel Prize in economics in part for their work creating said algorithm, which is also used in areas such as matching students with public high schools.

A 2002 class-action lawsuit claimed that the medical residency algorithm violated antitrust laws and artificially lowered resident salaries, which are not negotiated between residents and programs. The lawsuit was dismissed after Congress made a special exception for the medical match program under antitrust law.

Dr. Agarwal’s paper finds that applicants are willing to pay an “implicit tuition”—defined as the difference between their actual salary and the salary their labor is worth–to have a prestigious and high-demand residency, such as those at Massachusetts General Hospital or Johns Hopkins Hospital. This keeps salaries low across the board, since all programs are able to levy an “implicit tuition” based on how desirable they are. The implicit tuition is the largest at the top.

“The top programs pay a little bit more than the average programs, but there’s a sense in which their salaries are low relative to the value of the medical resident labor they’re getting,” he said.

Dr. Agarwal used data collected from 2003 to 2011 by the National Graduate Medical Education census. He knew only the outcomes and not how the residents and programs ranked each other.

However, programs that hire multiple residents reveal a lot about their preferences. By comparing the profiles of the residents ultimately accepted by a program, he could infer which factors–such as licensing scores or educational prestige–the program valued most in the admissions process. After doing this for various programs, he was then able to figure out which options a given resident was likely to have had, and estimate the demand for each position.

Since the number of positions is limited relative to demand, more positions at these top residencies would mean the programs will have to compete with each other, therefore increasing salaries, he explained."

Market culture and salary discussions

My first academic job, in 1974, was at the University of Illinois, where professors were state employees whose names and salaries appeared (with some delay) in the state budget. So, if you wanted to, you could go to the library (those were pre-internet days), check out the state budget, and study the salaries of all your colleagues.

As a result, at least among the young assistant professors, salaries were discussed freely. We would each get annual letters telling us how much we were appreciated, and then telling us about our salary for the next year, and we all treated those numbers as public information, knowing that they would indeed be public in a few months for anyone curious enough to look.  That had some effect on salary policy: e.g. anomalies between new hires and previous hires had to be noted and explained (there was high inflation in those days, and the state budget often lagged behind the rate of increase in the new Ph.D. market, for example).

I subsequently moved to private universities (Pitt, then Harvard, and now Stanford), where salaries were not public and salary discussions were more guarded, and among closer circles of friends.

More generally, salary has long seemed to be one of the things that Americans are reluctant to talk about freely.  But that may be partly generational, according to this recent WSJ story:
Workers Share Their Salary Secrets: Office Taboo Fades as Younger Staffers Openly Compare Pay; Wanting to Know 'Have I Settled?'

"Comparing salaries among colleagues has long been a taboo of workplace chatter, but that is changing as Millennials—individuals born in the 1980s and 1990s—join the labor force. Accustomed to documenting their lives in real time on social-media forums like Facebook and Twitter, they are bringing their embrace of self-disclosure into the office with them. And they're using this information to negotiate raises at their current employer or higher salaries when moving to a new job.

"Not surprisingly, many firms want to keep salary information private. They hope to retain the upper hand on salary negotiation and hope to keep flawed or even discriminatory compensation systems under wraps.

"But for workers, information is power, and young people recognize this. "People are much more willing to talk about pay than they were even 10 years ago," says Kevin Hallock, director of the Institute for Compensation Studies at Cornell University and author of the 2012 book "Pay: Why People Earn What They Earn and What You Can Do Now to Make More."
...
"Companies may not like transparency, but they cannot outright bar rank-and-file employees from disclosing their pay internally or externally, under the federal National Labor Relations Act, says Fort Lauderdale employment lawyer Charles Caulkins of law firm Fisher & Phillips. That means that an employee handbook or social-media policy barring workers from disclosing their pay is generally a violation, he says. (The rules are different for managers and supervisors, who can legally be prevented from disclosing pay.)"
...
"Lucy Bayly, 43, a copywriter for an advertising agency in Oneonta, N.Y., compares discussions about income with conversations about sex: "You're dying to know, but it's too rude to ask."

Such conversations run the risk of inspiring a corrosive kind of jealousy, she says. "You think you're satisfied and then all of a sudden, you find out someone is paid a little more, and it ruins your day because you start wondering, 'Have I settled?' "

Salaries of new law grads

Salaries of new law grads have been bimodal for some time (at least since 2000), with the high mode being hires at large law firms. That mode, which is very narrow (all the big firms pay the same wage) has stayed at $160,000/year for the last several years. Here's a report from the NALP: Salaries for New Lawyers: An Update on Where We Are and How We Got Here by Judith N. Collins.

The paper contains graphs of the salary distributions for 1991, 1996, 2000, 2006, and 2011.

"As the 1990s progressed, the curve maintained its basic shape, though salary increases at large firms gradually moved more of the salaries to the right of the $70,000 mark. In 1996, salaries of $75,000 and $85,000 became more common than salaries of $70,000, but $75,000 and $85,000 still each represented just 6% of salaries, and 45% of salaries were in the $30,000 to $40,000 range.

"In 1998 and 1999, the marker again moved to the right, to $90,000, and about 6% of salaries. This corresponds with a period of salary increases, moving the median at firms of 251+ lawyers from $72,000 in 1995 to over $90,000 in 1999. The shift notwithstanding, the overall distribution maintained the basic, though lopsided, bell shape.

That shape changed dramatically in 2000 as large firms increased their starting salaries to $125,000. Beyond just the amount of the increase, of more consequence for the salary distribution was how widespread the increase was. Suddenly nearly 14% of salaries were reported at $125,000, a proportion that can only be partially explained by an increasing percentage of jobs taken in large firms. The result was, for the first time, two peaks, with the other encompassing the $30,000 to $50,000 range. Thus, even though the peak to the left was now fatter and accounted for more salaries — 48% versus the 14% at $125,000 — never before had a single salary so dominated the landscape. The $125,000 peak remained through 2005."
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See previous posts on the various markets for lawyers, which are pretty interesting (the markets if not the posts...). For one thing, the market for new associates at big law firms is  unraveled in time, with new hires most often coming through the pipeline as second year summer associates, presently being hired at the beginning of their second year of law school.

Could the Church of England declare finance to be repugnant?

It looks like they might try: Church leaders accuse bankers of losing their 'moral moorings'

"..."It is hard to imagine a more powerful way of telling someone that they are of little value than to pay them one-third of 1% of your salary," he said.

"Among the ill effects of very large income differences between rich and poor are that they weaken community life and make societies less cohesive."

"He said that "Queen's honours" – meaning peerages, knighthoods and other official honours – should not be given "to those who have already rewarded themselves handsomely".

Florida puts university salaries online

The State of Florida has posted its salary information, including state university salaries, online: Florida has a right to know.

(Other salary databases here.)

White House aides aren't lured by their current salaries

White House salary information released, including a database by name.

Salary databases

This week, as economics graduate students start preparing their job market information, I'm planning to have several posts about job markets. I'll concentrate mostly on academic job markets, mostly in other disciplines. Today I'll focus on information about salaries.
Markets do many things, and one of them is to set wages. Americans are reticent about income, so there's always some interest in stories like this one in the Washington Post: What Washingtonians Make , from the President to an Abraham Lincoln portrayor (not the same guy)
One domain in which salaries are more or less public is government, which includes the pay of professors at state universities. At universities where salaries are public, this changes the culture a bit. When I was a professor at the University of Illinois, the fact that salaries were public (in those days you could check out the state budget book from the library, and find your name in it) meant that my young colleagues and I talked about our raises, and what they might mean, much more freely than at universities where salaries were private, not to say secret.
Non profit corporations of all sorts also have to reveal limited salary information on IRS form 990, stating the pay of officers and the top 5 salaries to non officers. This involves some game playing. When that requirement went into effect, I was teaching at the University of Puttsburgh. The first year, if memory serves, the top 5 salaries to non officers all went to active surgeons in the medical school. The second year, none of those surgeons was listed, the top 5 non-officer salaries were all much lower, and went to medical school department chairs. The surgeons weren't paid less, they had just shifted their compensation from reportable salary to non-reportable practice plan payments.
Below is a miscellaneous collection of searchable databases, including State salaries and Form 990's, thanks to the Freedom of Information Act.
State salary databases
http://wikifoia.pbworks.com/State-Salary-Database from Wikifoia, "The wiki for helping people understand and use the Freedom of Information Act at the state and local level."
Sunshine Review, "Establishing the Standard for Government Transparency" Public Employee Salaries

http://umich.highedsalaries.com/ Higher Education Salaries, seems to have salaries for Michigan, George Mason U, and Purdue... (Michigan was a pioneer in making salaries public on the web Faculty and staff salary record.Ann Arbor, Mich. : University of Michigan (excel spreadsheets, by year)) {Update from the comments: The student newspaper at Michigan has put up a better, searchable database of the Michigan salary information: http://data.michigandaily.com/tmdsal }
Ontario public salary disclosure for 2009 Ontario universities http://www.fin.gov.on.ca/english/publications/salarydisclosure/2009/univer09.html
British Columbia public salaries, with a searchable database.

Non profit companies: ERI Nonprofit Organization Information (IRS Form 990 data, including "Part V List of Officers, Directors, Trustees and Key Employees," and "Compensation of Five Highest Paid Employees Other Than Officers, Directors and Trustees (Schedule A)". (Some organizations fill out these forms more transparently than others.)
Private sector: I don't know of any comparable resources for private sector salaries (where no sunshine or freedom of information acts apply), although there are places where you can get samples rather than full databases, e.g. Glassdoor.com has http://www.glassdoor.com/Salaries/index.htm, and PayScale has a variety of surveys reporting average salaries, e.g. http://www.payscale.com/research/US/Country=United_States/Salary , with an index here http://www.payscale.com/index/US
Misc. updates:
Here is the summary of the Association to Advance Collegiate Schools of Business 2008-09 US SALARY SURVEY REPORT.
Here is a collection of state university salary databases.
and here: http://www.collegiatetimes.com/databases/salaries
university and college president salaries
The Dec. 2010 Forward publishes a list of salaries of Jewish community organization leaders.