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Making Salary Ranges Public May Shrink Pay Gaps But Slow Wage Growth

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Large business centers including New York City and the states of California and Washington have introduced salary transparency measures in recent years. Experts believe these laws will address pay equity issues. The rise of pay transparency laws could shrink net wage growth over time as an unintended consequence, according to a National Bureau of Economic Research report.

The rise of pay transparency laws in the United States could change how the nation’s workers negotiate their annual salaries in today’s fast-changing labor market.

As layoffs mount in the face of recession fears, the increased number of job seekers will be seeing more positions in states that mandate pay ranges be publicly listed.

Colorado became the first state to require public disclosures of salary ranges in 2021. Now jurisdictions including Washington state, California, and New York City have taken up similar mandatory public disclosure laws. These measures typically affect businesses with at least a small number of employees.

Experts believe the arrival of these laws could mark a tipping point in the long-running fight for wage equity.

“When Colorado required that, in the immediate aftermath, there were some companies that tried to get a little cute and in their postings said, you can do this anywhere in the country except Colorado,” said Emily Martin, vice president of Education & Workplace Justice at the National Women’s Law Center. “You can’t really do that when you have industry leaders like New York and California requiring this.”

The rise of these pay transparency laws could boost wages for minorities and women, who may be paid less than their peers. The pay gaps derive from many factors including job preferences and inexplicable discrepancies.

But a growing body of research also says that the movement could dampen wage growth over time. “What we found is that people get smaller raises,” said Bobak Pakzad-Hurson, an assistant professor of economics and entrepreneurship at Brown University.

Nuances of rising pay transparency were highlighted in a report Pakzad-Hurson co-authored in the National Bureau of Economic Research. “Is the juice worth the squeeze? In some sense, I think we have to weigh these trade-offs,” he said in an interview with CNBC.

Watch the video above to learn more about the rise and potential implications of pay transparency.

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