How Do You Tell if Pay Transparency Is Working?

From Are Pay Transparency Laws Working?

by Chelsea Bodin

at Nilan Johnson Lewis PA

Nationally, the gender pay gap is the narrowest on record with the latest U.S. Census figures showing that, on average, women working full time earned 84% of what their male counterparts earned.[1] However, long-term progress towards narrowing the gender pay gap has been relatively stagnant. Between 2002 and 2022, the gender pay gap improved by only two percentage points – from 80% to 82%.[2]

To tackle this persistent problem, policy makers have advocated two popular approaches. First, a growing number of state and local governments have enacted pay transparency laws requiring employers to disclose certain pay information to job applicants and employees. Second, even more states have amended their equal pay laws to prohibit employers from asking for applicants’ pay history.

So, are these laws working as intended?

To answer that question, we did some digging for you. Unfortunately, the data – or lack thereof – largely suggests it is still too soon to tell considering most pay transparency laws are still in their infancy. Very few organizations have analyzed the impact of pay transparency laws on pay gaps in the U.S., as opposed to impacts on other metrics such as labor participation.

Organizations that have analyzed pay gap impacts largely have done so without distinguishing between various types of “pay transparency laws.” For example, one organization found that occupational gender pay gaps are closing more rapidly than the national average in four of six states with pay transparency legislation.[3] Of the states analyzed, some have enacted pay history bans but do not (yet) require employers to disclose pay information to job applicants upon request or in job postings. Other states analyzed pay history bans and requirements that employers disclose pay information in a specific manner. The analysis treats these states’ laws as if they are the same and focuses squarely on comparing pay data for a given state with national pay data.

Based on this analysis, the rate of progress is faster than the national average with respect to occupational gender pay gaps:

• Illinois –1.2x
• Colorado – 1.3x
• Washington – 2.1x
• Massachusetts- 2.4x

Conversely, the analysis also determined occupational pay gaps in California and New York closed at a slower pace than the national average, but it’s important to note that both states started with some of the smallest pay gaps in the nation.

Overall, these findings raise additional questions, including how pay history bans impact pay gaps in comparison with required pay disclosures in job postings (or some combination of the two). Pay transparency proponents may view these findings as promising, but research will likely provide more insight as additional data becomes available from other states, covering a broader timeframe.

Researchers and skeptics alike have also pointed out that additional variables, including other economic factors, impact the limited pay transparency data. Because pay transparency laws are generally correlated with reduced pay gaps within occupations, they have limited bearing on other potential drivers of the pay gap, such as disproportionate representation in higher paying roles. In addition, during the pandemic between February 2020 and March 2021, women left the workforce in record numbers and at a significantly higher rate than men.[4] As a result, gender pay gap assessments from early 2020 to the present have faced additional criticism.

Though it may be too soon to determine whether pay transparency laws are narrowing pay gaps as intended, they appear to have had a more immediate impact on hiring and retention:

• A survey by Indeed found that 75% of U.S. job seekers were more likely to apply for a job if it included salary data. Relatedly, job postings that included pay rates attracted on average 30% more applicants.[5]
• A survey of HR professionals found that 66% of organizations that list pay ranges on job postings reported that doing so has increased the quality of their applicants.[6]
• 73% of U.S. workers surveyed stated they are more likely to trust organizations that provide pay ranges in job postings than those that do not.[7]
• 36% of organizations reported that pay transparency in job postings has caused more current employees to ask about receiving a pay raise.[8]

[1] U.S. Census Bureau, Census Bureau Table B24021, available at: https://data.census.gov/table?q=B24021.

[2] See Rakesh Kochhar, The Enduring Grip of the Gender Pay Gap, Pew Research Center, available at: https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/.

[3]See Chris Martin, The Gender Pay Gap is Shrinking Faster in 4 of the 6 States with Pay Transparency Laws, available at: https://synd.io/blog/gender-pay-gap-by-occupation/.

[4] See Monthly Labor Review, U.S. Bureau of Labor Statistics, available at: https://www.bls.gov/opub/mlr/2021/article/covid-19-ends-longest-employment-expansion-in-ces-history.htm.

[5] Cory Stahle, Pay Transparency is Now in a Majority of US Job Postings – with More Growth to Come, Indeed Hiring Lab, available at: https://www.hiringlab.org/2023/09/14/pay-transparency-majority-of-us-job-postings/

[6] New SHRM Research Shows Pay Transparency Makes Organizations More Competitive, Leads to Increase in Qualified Applicants, Society for Human Resource Management (SHRM), available at: https://www.shrm.org/about/press-room/new-shrm-research-shows-pay-transparency-makes-organizations-competitive-leads-to-increase-qualified-applicants.

[7] Id.

[8] Id.