{
    "id": 28903,
    "citation_title": "Equilibrium Effects of Pay Transparency",
    "citation_author": [
        "<NAME>",
        "<NAME>"
    ],
    "citation_publication_date": "2021-06-14",
    "issue_date": "2021-06-10",
    "revision_date": "2021-06-22",
    "topics": [
        "Microeconomics",
        "Game Theory",
        "Economics of Information",
        "Labor Economics",
        "Labor Compensation",
        "Other",
        "Accounting, Marketing, and Personnel"
    ],
    "program": [
        "Labor Studies"
    ],
    "projects": null,
    "working_groups": [
        "Market Design",
        "Organizational Economics",
        "Personnel Economics"
    ],
    "abstract": "\n\nThe public discourse around pay transparency has focused on the direct effect: how workers seek to rectify newly-disclosed pay inequities through renegotiations. The question of how wage-setting and hiring practices of the firm respond in equilibrium has received less attention. To study these outcomes, we build a model of bargaining under incomplete information and test our predictions in the context of the U.S. private sector. Our model predicts that transparency reduces the individual bargaining power of workers, leading to lower average wages. A key insight is that employers credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others under transparency. In situations where workers do not have individual bargaining power, such as under a collective bargaining agreement or in markets with posted wages, greater transparency has a muted impact on average wages. We test these predictions by evaluating the roll-out of U.S. state legislation protecting the right of workers to inquire about the salaries of their coworkers. Consistent with our prediction, the laws lead wages to decline by approximately 2% overall, but declines are progressively smaller in occupations with higher unionization rates. Our model provides a unified framework to analyze a wide range of transparency policies, and reconciles effects of transparency mandates documented in a variety of countries and contexts.\n\n",
    "acknowledgement": "\nWe are extremely grateful to Aviv Nevo and three anonymous referees. One referee in particular shifted the direction of this paper, and we are extremely appreciative of their contribution. We are very grateful for guidance from <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, and <NAME>. We also thank <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, <NAME>, and <NAME> and seminar attendees at Stanford, UCLA Anderson, NYU Stern, HBS, Dartmouth, Brown, USC, UCSD, UCSB, Penn State, Michigan SI, AEA, SIEPR, EC\u201919, SOLE, and NBER SI (Digitization and Personnel) for helpful comments and suggestions. We are indebted to Chloe Lee, and especially <NAME>- Elliott and <NAME> for excellent research assistance. This research was supported by the Center for Comparative Studies in Race and Ethnicity and the B.F. Haley and E.S. Shaw Fellowship through SIEPR. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.\n\n\n"
}