Emerging Analysis Sheds Light on Effectiveness of Pay Transparency Laws

The idea behind pay transparency laws is that many applicants simply don’t have enough information to know what a fair wage is.

This article was first published on June 7, 2023, by HR Daily Advisor, a sibling publication to HealthLeaders.

Income inequality is one of the most impactful and persistent sources of broader inequality in the United States, with women, Hispanics, and African Americans earning considerably less than white and Asian men. To address this problem, jurisdictions around the country have turned to pay transparency laws, which require employers to share pay information with job applicants and employees.

Pay Transparency Laws Proliferating

The idea behind pay transparency laws is that many applicants simply don’t have enough information to know what a fair wage is. If applicants know a job they’re applying for typically pays $75,000 per year, they’ll be less likely to accept that job for $50,000 per year.

“Throughout the past year, more and more states and cities across the US have introduced laws designed to force companies to be more transparent about how much they pay employees,” writes Josie Cox in an article for BBC Worklife. 

California and New York Lead the Way

“The most high-profile recent moves came in the states of California and New York— two major job markets—which signed off on pay transparency legislation mandating employers post salary ranges in job adverts in late 2022,” Cox notes. “According to experts, the legislation is designed to stamp out pay gaps, particularly along gender and racial lines, by preventing both unconscious bias and outright discrimination that skews compensation in favour of certain groups.”

But have these laws had the desired effect? According to some recent analysis, results are mixed at best. Part of the problem is that pay transparency is likely just one factor in a very complicated network of broader income inequality issues, so fixing pay transparency is unlikely to eliminate income inequality on its own.

Pay Gaps Are Not Always About Bias

While discrimination may play a role in some cases, research suggests pay disparities aren’t always related to bias. For instance, women and minority workers may simply ask for less money or not negotiate as aggressively as their white male counterparts.

According to the experts supporting this trend, transparent pay practices could help.

A big challenge with many pay transparency laws is the large number of loopholes, Cox says. For example, New York’s pay transparency law requires employers to use “good faith” estimates of pay ranges, meaning those ranges can be fudged or made so broad as to be meaningless. Similarly, New York doesn’t require employers to post information on bonuses or company equity, which are potentially significant components of compensation.

Time Will Tell

While initial review suggests America’s pay transparency laws may not yet have fulfilled their intended objective of addressing income inequality, the laws have had some initial benefits, but income inequality is a complex problem for which there isn’t a single silver bullet.