Wage transparency doesn’t just reduce the gender pay gap, it also reduces salaries

Wage transparency measures help employees bargain for higher salaries and reduce the gender pay gap. But it might have an unintended side effect: lowering salaries overall. That’s according to a new study from researchers at the University of Toronto, Princeton University and the Social Analysis and Modelling Division from Statistics Canada.

Examining the salaries of nearly 100% of all full-time faculty at Canadian universities, the research came to three conclusions. Foremost, the study found, salary transparency reduced the gender gap by 30%. Secondly, the impact of wage disclosures are more “pronounced” in unionized workplaces. But they also found that the salary disclosures reduced faculty salaries “on average.” “In particular,” the report states, “transparency laws lead to a statistically significant 1-3 percentage-point reduction in salaries.”

According to the study, the reduction in the gender pay gap “reflects a slowing in the growth of salaries for male faculty.” In other words, the way they got more pay parity is to curb men’s salary increases.

In the United States, the average woman earned roughly 85% of a man’s salary in 2018. This means that a woman would have to work an extra 39 days to earn what her male counterpart makes in a year. While the gender pay gap has shrunk over time — it was 80% just the year prior — there is still room for pay equity between genders.

In 2016, then-President Obama took executive action requiring businesses with 100 or more employees to report salaries broken down by both race and gender to the Equal Employment Opportunity Commission. The law was dealt a blow when, after taking office, President Trump rolled back the measure.

But the issue never went away. The Paycheck Fairness Act is a labor law that was passed in the House two years ago but is still languishing in Congress. Among other things, the law would require wage data collection. And in a pushback to Trump’s executive action, a judge ruled last month that businesses must report wage data to the EEOC by the end of September this year.

At the time, Trump’s daughter Ivanka commented on the equal pay measure saying, "while I believe the intention was good and agree that pay transparency is important, the proposed policy would not yield the intended results.”

Costs and benefits of transparency

According to Yosh Halberstam, one of the report’s authors and a University of Toronto assistant economics professor, it’s still unclear what the exact cost-benefit equation is on transparency measures.

“We don't know much about the cost side, especially how transparency affects workers' subjective well-being,” he explained. “There are also the costs imposed on the firms filing the reports.”

With a gender gap reduction too large to ignore, can these results from Canada be applied here in the United States? Halberstam believes so, “especially if one considers similar public institutions,” he said.

“I think the key is that transparency laws require organizations to prepare a report listing the salaries of employees that could be accessed by the public,” he said. “Our findings are also consistent with a recent study on transparency in the private sector using Danish data.” Much like this research, the Danish study also found that pay transparency depressed salaries overall and reduced the pay gap.

The study does point out one potential problem with pay transparency down the road: exacerbation of the wage gap.

“If men and women use this information in a symmetric fashion in bargaining, one should not expect to see any impact on the gender pay gap,” the report says. And since men are more likely to negotiate for higher salaries, the study says: “if men, but not women, use the information in bargaining, it could exacerbate the gap.”

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Kristin Myers is a reporter at Yahoo Finance. Follow her on Twitter.

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