The gender pay gap is in the news. Again. But this time, the news is good; one state is taking a new approach to closing the gender pay gap, and I think it's going to get us closer to making pay gaps - ALL gaps, irrespective of protected class - a thing of the past.
On August 1st, Massachusetts Governor Charlie Baker signed Bill S.2199 into law. The new law, which will go into effect in July 2018, prohibits employers from asking about or investigating a candidate's salary history before making that candidate a hard salary offer. Specifically, it will be prohibited for employers to:
[S]creen job applicants based on their wage, including benefits or other compensation or salary histories, including by requiring that an applicant's prior wages, including benefits or other compensation or salary history satisfy minimum or maximum criteria; or request or require as a condition of being interviewed, or as a condition of continuing to be considered for an offer of employment, that an applicant disclose prior wages or salary history;
[S]eek the salary history of any prospective employee from any current or former employer; provided, however, that a prospective employee may provide written authorization to a prospective employer to confirm prior wages, including benefits or other compensation or salary history only after any offer of employment with compensation has been made to the prospective employee;
Why am I optimistic that this might be the solution to pay gaps? Because it starts at the root of the potential problem. I've long said that many of the pay equity problems organizations experience can be minimized, if not completely eliminated, by paying careful attention to how initial salaries are set for new employees. We all know that a small initial difference can compound over time, resulting in a very large difference years later. According to a recent estimate, a gender differential of 21 cents per hour today (based on the current raw wage gap) could lead to a loss of more than $430,000 over the course of a 40-year career.
From both the employer and employee perspectives, it's critical to get initial pay right.
By restricting information about salary history, employers will have to think carefully about their initial salary offers. They will need to evaluate what the job is worth, both inside the organization and within the market, and construct their offers accordingly. This is sometimes easier said than done. It's easy to set a policy that pays new hires an arbitrarily determined $X or Y% more than their salaries at their former jobs. It's a lot harder to "set the number" yourself, and requires a lot more information about the job in question, how your organization pays, why your organization pays what it does, and the labor market(s) in which your organization competes.
But, there's an old saying: "nothing worth doing is ever easy." Eliminating pay gaps is not easy - if it was, we would have done it already. There are a host of factors in play: occupational segregation, labor market experience and differences in absences from the workforce, tradeoffs between cash compensation and benefits, cultural norms regarding caregiving responsibilities, etc., as well as intentional and unintentional discrimination.
Differences in pay are still going to exist because of the legitimate, non-discriminatory differences between individuals. But if we take the time to set initial pay objectively, based not on salary history but on the actual "value" of the job, we can eliminate a portion of pay gaps that are attributable to discrimination, whether intentional or otherwise. This new law may be the key to getting employers to do just that.
Stephanie Thomas, Ph.D., is a Lecturer in the Department of Economics at Cornell University. She teaches undergraduate and graduate courses on economic theory and labor economics in the College of Arts and Sciences and in Cornell’s School of Industrial and Labor Relations. Throughout her career, Stephanie has completed research on a variety of topics including wage determination, pay gaps and inequality, and performance-based compensation systems. She frequently provides expert commentary in media outlets such as The New York Times, CBC, and NPR, and has published papers in a variety of journals.