New Research: Fairer Pay?

Pay transparency is an increasingly pressing issue for job-seekers, employers and lawmakers in the United States. One area of transparency that has advanced rapidly is the convention of pay range disclosures on job postings.

As of September 2023, six states have enacted laws requiring employers to disclose salary ranges in their job listings. These include California, Colorado and Hawaii (effective January 1, 2024), Illinois (effective January 1, 2025), New York (effective September 17, 2023) and Washington (effective January 1, 2023). In some of these states, employers under varying size thresholds may be exempt from the law (for example, those under 15 employees in California, Illinois and Washington).

Even in jurisdictions without such regulation, companies are increasingly disclosing pay ranges on job postings in anticipation of future regulation or in response to labor market pressures.

The problem with ambiguous pay transparency laws

One of the primary motivations behind these new pay disclosure laws is to reduce pay inequity by giving employees more information about the going salary for a position.

For example, Illinois state representative Mary Beth Canty says that Illinois’s new legislation seeks to “disrupt inequality by informing prospective employees of the pay scales of open jobs so they can make educated decisions as they negotiate compensation.”

Similarly, New York Governor Kathy Hochul states that her state’s law aims to “level the playing field for all workers and reduce discriminatory wage-setting and hiring practices.”

However, these pay transparency laws are ambiguous and leave significant discretion to employers. For example, Washington simply requires employers to disclose a pay range that represents “reasonable and genuinely expected compensation for the job,” while New York and Illinois require pay ranges to just be “good faith” estimates. In Illinois, a “good faith” estimate can be based on any pay scale the company deems applicable.

As a result of the discretion afforded by these pay transparency laws, there is significant variation in practice in the width of pay ranges disclosed on job postings. For example, while some job postings provide narrower ranges, such as $130,000 to $135,000, others advertise wider ranges, such as $50,000 to $180,000.

Employers explain that these wide pay ranges enable them to accommodate cost-of-labor differences across cities and to attract a wider pool of job applicants with greater variation in qualifications. However, job seekers express frustration and distrust in response to wide pay ranges, criticizing such disclosures as neither helpful nor transparent.

Inadvertently undermining equity goals

Although companies may have various reasons for choosing to widen their disclosed pay range, doing so could actively work against the objective of pay disclosure laws. Not only do wider ranges limit the informational value of the pay range for job-seekers, but psychology theory suggests that wider pay ranges could unintentionally and disproportionately deter women from applying to positions in the first place.

As a result, rather than resolving gender differences in the workplace, they could have the opposite effect.

I decided to examine this phenomenon alongside Foster doctoral students Joe Croom and Benjamin Yang. In our new paper, we investigate whether the width of disclosed pay ranges differentially affects the job application decisions of men versus women. We recruit participants for our study from an online survey platform and ask them to assume the role of a prospective job applicant evaluating job postings. We randomly vary whether the first job posting they see has a narrow pay range (i.e., $39,100 to $43,200) or a wide pay range (i.e., $26,800 to $55,500), then compare the willingness to apply of participants who see each range.

Limit the disclosed pay range

We find that women are significantly less willing to apply to a position when there is a wide pay range relative to a narrow pay range, while men appear indifferent between a wide and narrow pay range.

Further analyses suggest this is because women are more likely to interpret a wider pay range as a signal of pay inequity within the company relative to men, and women place more weight on pay inequity in their application judgments relative to men. This is consistent with prior research in psychology determining that, because women are more likely than men to have first-hand experience with pay inequity, they are more likely to be vigilant for signs of pay inequity and avoid putting themselves in a position where they may face it again.

Our findings are informative for employers and policymakers. Pay range disclosures are relatively new, and employers are still trying to understand best practices, such as the costs and benefits of disclosing a wider vs. narrower range. Our research informs employers of an unintended consequence of widened pay ranges on hiring outcomes and perceptions of DEI.

Meanwhile, our results suggest to policymakers that pay range disclosures, when widened, may exacerbate rather than mitigate gender differences and work against the intended goal of pay range disclosure laws. Consequently, policymakers may consider putting more defined limits on the width of disclosed pay ranges or requiring companies to provide more detail on their disclosed pay ranges, such as disclosing the type of candidate who might fall in the bottom, middle or top of the range.

This article, and the research it is based on, was a collaboration of Darren Bernard and Foster PhD candidates Joe Croom and Benjamin Yang.