[Paper Review] US Salary History Bans -- Strategic Disclosure by Job Applicants and the Gender Pay Gap

Sourav Sinha|arXiv (Cornell University)|Feb 8, 2022

Experimental Behavioral Economics Studies4 citations

TL;DR

This paper examines U.S. salary history bans (SHBs) that prohibit employers from inquiring about job applicants' past pay, allowing voluntary disclosure. Using a difference-in-differences design and survey data, it finds SHBs reduced the gender pay gap by 2 percentage points, primarily through increased female earnings, and decreased voluntary disclosure—especially among women—due to reduced employer prompting and higher non-conformity costs for women.

ABSTRACT

I study the effects of US salary history bans which restrict employers from inquiring about job applicants' pay history during the hiring process, but allow candidates to voluntarily share information. Using a difference-in-differences design, I show that these policies narrowed the gender pay gap significantly by 2 p.p., driven almost entirely by an increase in female earnings. The bans were also successful in weakening the auto-correlation between current and future earnings, especially among job-changers. I provide novel evidence showing that when employers could no longer nudge candidates for information, the likelihood of voluntarily disclosing salary history decreased among job applicants and by 2 p.p. more among women. I then develop a salary negotiation model with asymmetric information, where I allow job applicants to choose whether to reveal pay history, and use this framework to explain my empirical findings on disclosure behavior and gender pay gap.

Motivation & Objective

• To assess the causal impact of U.S. salary history bans (SHBs) on the gender pay gap using real-world policy variation.
• To investigate how SHBs affect job applicants’ strategic disclosure of past pay, particularly by gender.
• To explain the observed changes in disclosure behavior using a theoretical model of asymmetric information in salary negotiations.
• To examine whether SHBs weaken the correlation between past and future earnings, especially among job-changers.
• To explore behavioral motivations behind disclosure decisions, including privacy concerns and discomfort with discussing pay.

Proposed method

• Employs a difference-in-differences (DiD) design using data from the Current Population Survey (CPS) to estimate the causal effect of SHBs on wages and disclosure.
• Uses confidential PayScale survey data to analyze individual-level disclosure behavior before and after SHB implementation.
• Applies a theoretical model of salary negotiation with asymmetric information, where applicants choose whether to reveal pay history.
• Incorporates two types of utility costs: gender-invariant privacy cost and gender-specific non-conformity cost (higher for women) when refusing to disclose.
• Models equilibrium disclosure behavior as a function of the initial wage distribution and the presence of non-conformity costs.
• Uses survey data to validate behavioral motivations behind disclosure decisions, such as negotiation leverage and discomfort with pay discussions.

Experimental results

Research questions

• RQ1 To what extent do salary history bans reduce the gender pay gap in the U.S. labor market?
• RQ2 How do SHBs affect the voluntary disclosure of salary history among job applicants, and does this effect differ by gender?
• RQ3 What role does employer prompting (i.e., asking about pay history) play in driving disclosure rates before and after SHBs?
• RQ4 Why do disclosure rates decline after SHBs, and can this be explained by behavioral incentives such as privacy and non-conformity costs?
• RQ5 Can a theoretical model with asymmetric information and gender-specific costs explain the observed empirical patterns in disclosure and wage outcomes?

Key findings

• Salary history bans reduced the gender pay gap in hourly wages and weekly earnings by 2 percentage points, driven entirely by increased earnings among women.
• The bans significantly weakened the correlation between past and future earnings, especially among job-changers, suggesting reduced history dependence in wage setting.
• After SHBs, the likelihood of voluntarily disclosing salary history decreased by 2 percentage points overall, with a 2-percentage-point larger decline among women.
• Applicants who were previously asked about their pay history were over 60 percentage points more likely to comply than those not asked, indicating employer prompting strongly influenced disclosure.
• Pre-SHB disclosure rates were 2 percentage points higher among women than men, driven by both higher rates of being asked and higher compliance when asked.
• A theoretical model with gender-specific non-conformity costs and privacy costs can rationalize the observed decline in disclosure rates and the reduction in the gender pay gap after SHBs.