Disclosing salary history perpetuates past discrimination

Job seekers and recruiters meet during a job fair in Philadelphia, June 2014.

 Two people working for the same employer do the exact same job, have the exact same qualifications, and are equal in output and productivity. The only difference? One gets paid more than the other. Perhaps one of them successfully negotiated a better salary, which is much more likely for men. Or perhaps one of them is a woman or person of color, which suggests that discrimination may be at play.

 Or maybe it’s simply that one worker was underpaid at her last job, while the other was not. When workers apply for jobs, they often receive a salary offer based on what they earned at previous jobs. This kind of situation is not uncommon, as employers frequently evaluate or make job offers to job candidates based on their previous salary history. In fact, half of all workers report that their current employer learned about their previous wage level during the application process. But in doing so, these employers may be unwittingly perpetuating even a single instance of pay discrimination that happened early on in a worker’s career—and impeding wage growth throughout his or her lifetime.

 That is why a growing number of states and cities such as Massachusetts, New York City , Philadelphia, and Delaware are passing legislation banning employers from asking about salary history during the job application process. These bills are aimed at trying to close long-standing gender and racial pay gaps. Even when controlling for factors such as education, occupation, labor force experience, and union status, women and people of color still get paid less than white men, and researchers attribute this to discrimination. Having a salary that is too low also may shut people out of jobs altogether. Because some employers use an applicant’s prior compensation to evaluate that worker’s productivity, a salary that is too low may, in the case of discrimination, erroneously signal a lack of ability and result in the employer not making an offer.

 These state- and city-level policies were enacted relatively recently, so economists and policymakers are still unable to evaluate their effects fully. But a recent field experiment by Moshe A. Barach of Georgetown University and John J. Horton of New York University gives us some hope that the reforms may be effective. They find that employers who could not see applicants’ previous salaries responded by evaluating more workers, asking more questions, and arranging more in-person interviews. These employers also interviewed and hired workers with relatively lower past wages when compared with employers who did have access to applicants’ compensation history. Not having to reveal previous wages also gave workers more bargaining power, and they were offered higher initial salaries compared with those who did have to reveal their pay history.

 This is just a single study, and more research needs to be done to discern the full effects of this policy. But these initial results are promising and have implications for other groups as well. Banning salary history could help workers recover from an economic downturn, when they may have had to take a lower-paying job. It could also help older workers who were laid off at the peak of their careers but cannot find a job because potential employers view them as too expensive. Without applicants’ salary history, applicants may have more leverage to bargain for higher pay. It also means that employers must evaluate applicants’ concrete skills and experience—what they should have been evaluating in the first place.

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