In recent years, states and municipalities across the US have begun implementing pay transparency laws. Currently, New York State’s pay transparency law is set to go into effect on September 17, 2023; it will require employers to include pay ranges in job postings for positions in the state (and out-of-state employees reporting to a manager in the state). Europe has an even longer history of instituting pay transparency laws with some member countries implementing pay transparency laws of their own over the past 20 years. EU-wide pay transparency measures are currently in the process of being finalized. The intention of these laws is often to increase equitable compensation by increasing pay transparency.
As labor economists, we model the information that pay transparency reveals as three different types of pay comparisons which impact employee and employer decision making in different ways. “Horizontal” pay transparency reveals pay differences among similarly situated coworkers within a firm. Other types of pay transparency policies implement “vertical” pay transparency (differences across levels of seniority within a firm) or “cross-firm” pay transparency (differences across firms offering different wages for similar work).
In this Labor & Employment Literature Watch we review current economic studies that use data to predict and estimate how employer and employee behavior may change in response to pay transparency laws. We also provide some tips for employers to consider when responding to these changes.