Lack of wage transparency is a real factor in suppressing American wages.
I remember the uneasiness of asking for my first raise—only to have my boss tell me the number I had in mind would make me the “highest paid employee.” It was a startling admission. I was asking for $44,000 a year, which seemed reasonable to me. But I didn’t know how my pay compared to the business’ other five employees. So I didn’t call my boss’ bluff. I settled for $42,000.
You probably don’t know how much your coworkers make either. I get it. It’s an awkward conversation to have. It’s taboo. Plus, do you really want to discover that Stephen makes $20,000 more than you? No. So you don’t ask. You skirt around the issue, only talking about your pay in the privacy of your own home.
There is a serious price to pay for keeping your salary secret, though: it benefits your boss. Their asymmetric knowledge of who earns what enables them to pay you “less than [your] economic value” demands, as my experience illustrates.
Now, standard economic theory suggests that this shouldn’t happen. In a competitive labor market, a worker’s pay is determined by the economic value of their labor. If a business underpays its employees, then they should expect to have their workforce leave for better jobs. But one of the features of a competitive market is “perfect knowledge”; that is, both businesses and employees possess the same information.
However, that’s not the case in America today. While websites like Glassdoor supply people with greater awareness of salaries and benefits, these “data sources all have considerable weaknesses when it comes to gaining a precise understanding of prevailing wages.” To get a leg up over their employees, more than half of employers conduct their own salary surveys. These employers generally don’t share their findings with the employees. Instead, they say, “Trust us, we offer competitive compensation.”
Is it any wonder America suffers from decades of stagnant wages?
This feature of the modern workplace is totally avoidable, too. When unions represented the majority of American workers, there was greater “familiarity with the distribution of wages in a given market.” In turn, this put “workers in a stronger position during negotiations”—which could help explain why wage growth was stronger when more people belonged to a union.
Unions aren’t coming back, though. So in a post-union economy, how do we empower workers to negotiate for higher wages?
Benjamin Harris of Northwestern University has compiled a report enumerating five remedies to improving wage transparency. Quickly, Harris’ points are:
- Enact state laws to protect workers who discuss pay
- Require large firms to disclose pay trends to the Equal Employment Opportunity Commission
- Amend the safe harbor for compensation surveys
- Change state law to facilitate reciprocal pre-hiring wage disclosure
- Allocate funds for the Department of Labor to study transparency
The logic behind these wonky prescriptions is compelling. If businesses are forced to be transparent about wages, they will have a harder time suppressing them. You’d think whether you’re conservative or progressive, that is an outcome worth working towards.
Alas, Republicans have blocked legislation that aims to provide workers with more information on compensation. They have filibustered and condemned the Paycheck Fairness Act—a labor law that, among other provisions, would punish “employers for retaliating against workers who share wage information.”
Their arguments against the Act are ridiculous. Ever the critical thinker, Marco Rubio summed up his party’s attitude towards greater wage transparency when he claimed that “all [the Paycheck Fairness Act] really did is just help lawyers sue.” Ah, yes. Astute point, Marco.
If history has taught us anything, it is that businesses will not pay people what they are worth until they are forced to. That’s why some employers retaliate against workers for even discussing wages with each other. So while everyone keeps asking “why aren’t wages growing?,” keep in mind that there is a very simple fix which could improve workers’ bargaining position.
Enforcing greater wage transparency is not a silver bullet. It’s not going to completely erase all wage stagnation. But it is a powerful remedy to a labor market that favors the employer. If Americans want to see bigger paychecks, they should start by figuring out what their coworkers are making.
Think about that the next time you ask for a raise.