Why We Do and Don’t Want To Know What Our Colleagues Earn

How you feel about pay transparency depends on who you are.

Pay Transparency

Employees

Social norms and taboos have stopped most of us from knowing what our colleagues earn. However, when we do learn co-workers’ incomes, the impact can affect our bargaining power and our morale. As job hunters, knowing salaries, we gravitate to the higher paying positions. Meanwhile, within the firm, it is entirely different. When you learn that a co-worker earns more for the same work, you could have your bargaining power go up but your morale sinks. In addition, pay transparentcy helps us assess the impact of education and even the value of a detailed job search. From all of this, researchers concluded that more knowledgeable lower wage earners tend to benefit the most.

Employers

Meanwhile, on the employer side, the impact was partially predictable. When pay is transparent, employers tend to negotiate more aggressively because a raise for one could mean more for all. As a result, a firm’s wages could even be lower after transparency. A second employer perk is knowing more about your competitors and the ability to use wages knowledgeably to attract job seekers. You even could use wages as a signal of whom you value the most. Again summarizing, researchers said that lower wage workers gain the most as companies move toward median pay levels.

And finally, beyond the firm, transparency can diminiosh tax deinquencies.

Our Bottom Line: Pay Legislation

Citing specific examples, in the U.S., we could start with the 2009 Lilly Ledbetter Fair Pay Act. Here, we have a woman learning of pay discrimination from a male colleague. As a result, a new law more fully defined pay discrimination and extended the statute of limitations for filing a suit. Next, showing the range of legislation, we can jump ahead to a recent NYC law mandating that pay ranges be public. Or we can go to Finland on November 1 to see their data dump when anyone can visit a tax records office to learn what a neighbor earns. The NY Times called it Finland’s National Jealousy Day.

Summarizing the pay transparency landscape takes us to a slew of countries and U.S. states. The mandates range from prohibiting pay secrecy to reporting gender wage statistics:

To share a bigger picture of the pay transparency landscape, I copied part of a partial list from, Is Pay Transparency Good?:

So, where are? I wound up deciding that a seemingly simple policy is far more complex than we could expect.

My sources and more: Seeing this new NBER paper, I knew we should expand our look at pay transparemcy. It was also time to return to Finland and their “National Jealousy Day.”.