The gender pay gap is one glaring example of discrimination. Some states, though, have adopted salary history bans to limit the perpetuation of previous discrimination. In the presence of salary history bans, employers cannot request and utilize a job candidate’s previous salary information. However, such bans have a possible unintended consequence: preventing potential employers from being able to observe worker productivity—that is, blocking the information channel. The question is, then, whether this unintended consequence induces costs that will end up making salary bans counterproductive. In their RCFS paper “Hidden Performance: Salary History Bans and the Gender Pay Gap,” Jesse Davis, Paige Ouimet, and Xinxin Wang address this important question. They estimate the causal impact of salary history bans on wages using a panel dataset of wage data for public-sector employees. The paper contains two important results: salary history bans lead to a 3% decline in new-hire wages, and they have minimal effects on the gender pay gap among public sector employees. The authors expect the impact of increased uncertainty, arising from the ban, to be of particular importance when labor market protections are greater. In fact, the paper finds stronger wage reductions among new hires when more of the workers are unionized. Overall, these results are consistent with the view that limiting access to an informative signal of worker quality, even though it may be biased, has important and surprising implications for wages and the gender pay gap.
Spotlight by Isil Erel
Photos courtesy of Jesse Davis, Paige Ouimet, and Xinxin Wang