Banning salary history hikes pay for Black workers, study suggests

Executive Director of the Technology & Policy Research Initiative at Boston University School of Law James Bessen joins Yahoo Finance’s Zack Guzman to discuss how a recent study indicates banning salary history boost pay for Black workers and women.

Video Transcript

ZACK GUZMAN: Let's dig more, though, into the data behind what some of these companies could be doing-- any company, really, when it comes to trying to close the wage gap on the employment front. Perhaps maybe not just for minimum-wage workers but really workers across the board. A new study out of the-- out of Boston University was digging into exactly that question, showing that one simple change, really just not asking potential employees about their pay history, would actually do more to impact minority workers here than white workers, potentially giving them a notably much larger boost.

And for more on that, I want to bring on the professor behind that study. James Bessen, Executive Director of the Technology & Policy Research Initiative at Boston University School of Law, joins us now on the phone. And Professor Bessen, I mean, when we look at this, what is the differences that you see across race when you make that one simple change of saying, all right, no longer ask about salary history?

JAMES BESSEN: So what we do is we look at people who change jobs and compare people in states that are covered by the salary history bans to comparable people in other states just across the border. And what we find is that African American job changers in states with the ban will see wage increases that are 13% to 16% larger-- in other words, a huge gap when they change jobs.

ZACK GUZMAN: Yeah, but it was interesting to me. The numbers are pretty staggering when you think about a 5% larger, just on average, when you institute that ban. But as you said, 13% for African Americans and 8% higher for women.

When you look at it, though, what really goes-- what goes into that? What is the reasoning in maybe saying that these groups that may have been discriminated against in pay actually see a larger benefit when you remove that question of salary history? Why is that?

JAMES BESSEN: Right. So here's the thing. If I am underpaid because I'm discriminated against or for some other reason at one job and I go to get another job and the prospective employer can find out what I'm currently making, they know that they can give me an offer that's just a little bit above what I'm currently making and I'll take it. So what that means is a comparable worker who's been discriminated against in the past is going to still get a low wage in their new job. In other words, this use of salary-history information perpetuates inequality.

And when these salary-history bans come in, they can no longer do that, and all of a sudden they're in the tough-- the employers are in a tougher bargaining situation. Or rather, their bargaining advantage has been removed.

So prospective employers that are women or black or other individuals who may be underpaid for some other reason--


JAMES BESSEN: --are a much equal-- much more level playing field.

ZACK GUZMAN: Yes. You're kind of perpetuating the problem there when you do ask about salary history. But on the flip side, I mean, you note that some states have this salary-history ban in place, and that's really how you were able to do these comparisons. But when you look at it, what's maybe the pushback on why states might not want to adopt these salary-history bans? Is it mostly just companies out there advocating for protecting their bargaining power, or are their other threats out there that instituting this change might inevitably or accidentally lead to?

JAMES BESSEN: Yeah, so I mean, politically it's been, in some cases, companies have lobbied against these changes because it does erode their bargaining advantage. I think economists have raised some concerns about possible negative effects, and we look for these. It might cause highly talented people who are paid well on their previous job, maybe those people won't seek new jobs as often as they should. We looked for that and didn't find evidence of it.

It might be that employers are less able to hire quality people and so that job matches aren't as good. There's more turnover. We looked for that and didn't find evidence of that either. So doesn't seem at the moment that there are negative effects from this policy, but there are some, you know, rather large positive effects.

ZACK GUZMAN: Yeah, very-- I mean, very interesting data here when we think about a lot of people who might not have wanted to lose their job but might have to now think about what their negotiations or reemployment might look like on the other side. Important to keep in mind here.

But appreciate your time. James Bessen, executive director of the Technology & Policy Research Initiative at Boston University School of Law, appreciate it.