Pay transparency laws can help close the pay gap, but not eliminate it

You wouldn’t rent an apartment or even buy jeans online without knowing the price. Soon, many Americans won’t be looking for a job without knowing how much it pays.

A series of local and state laws, both recent and coming into effect soon, will force companies to disclose how much a job pays when posting an open job. Common sense aside, the purpose of these laws is to close the permanent wage gap that separates white men from women and people of color. Closing the pay gap would be a major step towards equality in the US, affecting everything from Americans’ quality of life to how they see themselves. But while pay transparency is a much-needed improvement, much more is needed to truly strike a balance for all Americans.

In the US, women and people of color are paid less than white men, regardless of job or experience. Pay gaps often begin carier startand then get worse throughout life, like women and people of color. less likely to get raises. Numerous other factors also contribute to the gap, such as the punishment for motherhood, where women who take paid leave to care for children paid nearly 40 percent less than those who don’t. There is occupational segregation in which jobs that are predominantly women or people of color, such as domestic helpers or food service workers, are paid less. (Earnings and prestige of computer science, for example, rose only as more men entered the field.) Women and Coloreds Seriously Too underrepresented in leadership positionswho are paid the most. In sum, this means the average hourly wage of women. is 86 cents per hour for every dollar the man does. Black women earn 68 cents. There was little progress to close the pay gap over the past three decades.

Enter this new stream of pay transparency laws.

“Transparency is one of the main tools we have identified for closing the wage gap,” Andrea Johnson, director of public policy at the National Women’s Law Center, told Recode. “This is absolutely essential both to increase the power of workers and to hold employers accountable.”

While some of the new pay transparency laws protect workers’ rights to negotiate wages without retribution, others go further. Laws that prevent employers from asking candidates about their salary history that have been unexpected appearance from Connecticut to Hawaii in recent years so that past wage inequality doesn’t inform how much a person earns in their next job. Most promising are laws requiring employers to publish a pay range for work when they first start hiring employees. One such law went into effect in Colorado in 2021. One in New York goes into effect in November, while laws in California and Washington go into effect in January. The governor of New York is expected to soon sign a statewide law of this kind, which will go into effect next year.

Opening up the salary range reduces the likelihood of hidden biases that will seep into new salaries because it changes the need for salary discussions, which usually works unfavorably for women and people of color. When women ask for a raisethat they do as much as men), for example, they are simply less likely to get them.

“Whenever we take away negotiation or reduce the role of individual negotiation, pay becomes more equal,” Ariana Hegewisch, senior fellow at the Institute for Women’s Policy Research, told Recode.

The very act of setting a pay range for a position forces companies to evaluate their pay methods and potentially eliminate disparities between existing employees. Finally, pay transparency for new positions will allow existing employees to negotiate pay increases if they are paid less than others in similar positions. Relying on workers to identify and discuss the difference is obviously imperfect, but it will certainly help.

“It’s very simple: the more data available, the better opportunity a talent will have to know how much it’s worth,” said Josh Brenner, CEO of Hired, a recruitment platform that publishes annual research on wage gap in engineering. The company’s software also notifies employers when it detects bias in their salary offers (Hired said the nudge results in salary offers being updated about 5% of the time, and those offers are 11% higher on average).

Bye study of the impact of wage range laws is new and therefore limited, experts point to a much smaller wage gap in government sector and in union vacancieswhere salaries are more transparent and regulated.

For transparency efforts to be successful, ranges should not be too large, and companies should be actively penalized for failing to comply with pay transparency rules. Study on Colorado’s New Pay Transparency Law showed that the share of job postings with salary information has risen by 30 percentage points since the law went into effect in 2021, but more compliance is expected over time. Data provided by compensation software company Payscale showed that employees working at companies with pay transparency earn 7% more than employees with the same job and qualifications at companies without such transparency.

And while these laws are currently being enacted at the city and state levels, it’s possible their impact will reverberate beyond those municipalities, forcing companies to voluntarily share payroll information, whether it’s to make job postings easier or to attract talent in a tough recruiting market. .

“I would say that about half of our clients came to us without any requirements for the legal side that they have to publish,” said Payscale senior corporate lawyer Lulu Seikaly, referring to the company’s requests for payment ranges. “They know that states like California, Washington, New York and Colorado are forced to publish their salary ranges, they will also be forced to publish their salary ranges just to attract talent.”

Other Strategies to Reduce the Pay Gap

Extending these pay transparency laws to existing positions, not just new job postings, and to more companies in more states would be even more effective. But pay transparency alone will not eliminate the pay gap entirely.

“There is no silver bullet,” said Elise Gould, senior economist at the Economic Policy Institute. “But I think pay transparency is moving us in the right direction.”

While the experts interviewed by Recode for this article expect pay transparency laws to certainly close the pay gap, they don’t think it will mean that women and people of color will suddenly get truly equal pay. As we know, the pay gap is caused by a number of issues, so different tactics are likely to be required to address it. Here are some that experts say will help us.

Going one step further and making this data public could encourage companies to correct the wage gap rather than waiting for allegations of discrimination to force them to do so. In addition, better funding for the EEOC will enable the organization to better respond to pay discrimination complaints they are handling.

Raise the minimum wage: Part of the reason for the pay gap is that women and people of color overrepresented in the lowest paid industries. Thus, raising the federal minimum wage, which has been stuck at $7.25 since 2009, would disproportionately help women and people of color and greatly reduce their pay gap.

Affordable and quality childcare: There is a crisis in childcare in America, and this greatly undermines the career prospects of women who take on more childcare responsibilities. Without proper childcare, women will continue to be forced out of the labor market and their wages will continue to suffer. This sector needs more public investment, which in turn will improve women’s personal and work lives.

Simplify unionization: Unions help rationalize pay bands and narrow the pay gapbut in the US it is incredibly difficult to unionize. The adoption of the PRO law, which stalled in the Senate after passing the House of Representatives will facilitate the process of unionization, and more unions means greater pay equity.

Of course, all of this is easier said than done, and it will take a long time for the pay gap to disappear. But the new transparency laws show that progress is possible, and so more changes are on the horizon.

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