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  • 2023
  • Working Paper
  • HBS Working Paper Series

Is Pay Transparency Good?

By: Zoë Cullen
  • Format:Print
  • | Language:English
  • | Pages:35
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Abstract

Countries around the world are enacting pay transparency policies to combat pay discrimination. 71% of OECD countries have done so since 2000. Most are enacting transparency horizontally, revealing pay between co-workers of similar seniority within a firm. While these policies have narrowed co-worker wage gaps, they have also lead to counterproductive peer comparisons and caused employers to bargain more aggressively, lowering average wages. Other pay transparency policies, without directly targeting discrimination, have benefited workers by addressing broader information frictions in the labor market. Vertical pay transparency policies reveal to workers pay differences across different levels of seniority. Empirical evidence suggests these policies can lead to more accurate and more optimistic beliefs about earnings potential, increasing employee motivation and productivity. Cross-firm pay transparency policies reveal wage differences across employers. These policies have encouraged workers to seek jobs at higher paying firms, negotiate higher pay, and sharpened wage competition between employers. We discuss research findings on pay transparency, and open questions.

Keywords

Pay Transparency; Trends; Transition; Communication Strategy; Wages; Policy; Europe; North America; Australia

Citation

Cullen, Zoë. "Is Pay Transparency Good?" Harvard Business School Working Paper, No. 23-039, January 2023. (Revised March 2023.)
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About The Author

Zoe B. Cullen

Entrepreneurial Management
→More Publications

More from the Author

    • May 2023
    • Econometrica

    Equilibrium Effects of Pay Transparency

    By: Zoë B. Cullen and Bobak Pakzad-Hurson
    • February 2023
    • Quarterly Journal of Economics

    Increasing the Demand for Workers with a Criminal Record

    By: Zoë Cullen, Will Dobbie and Mitchell Hoffman
    • 2022
    • Faculty Research

    What's My Employee Worth? The Effects of Salary Benchmarking

    By: Zoë B. Cullen, Shengwu Li and Ricardo Perez-Truglia
More from the Author
  • Equilibrium Effects of Pay Transparency By: Zoë B. Cullen and Bobak Pakzad-Hurson
  • Increasing the Demand for Workers with a Criminal Record By: Zoë Cullen, Will Dobbie and Mitchell Hoffman
  • What's My Employee Worth? The Effects of Salary Benchmarking By: Zoë B. Cullen, Shengwu Li and Ricardo Perez-Truglia
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