Knowledge Pays: Reversing Information Flows & The Future of Pay Equity

Abstract

After years of stagnation, pay equity law is gaining spectacular momentum. In the past three years, over a dozen states have passed important new legislation with numerous other bills pending before the federal, state, and local legislatures and a rising number of class actions underway. This article, the first to study the emerging ecology of pay equity law, argues that the underlying logic of these reforms is to structurally change the ways in which salaries are negotiated, determined, and, subsequently, detected and contested. Moreover, a central innovation of the new laws is to reverse information flows in the wage market. Efforts to eradicate wage discrimination have failed in large part because of information asymmetries and difficulties in identifying and proving discrimination. The new path of pay equity is to correct knowledge disparities in three key ways: 1) inducing more information about salaries, including protecting the exchange of information among employees; 2) reducing information that reflects existing biases by preventing employers from relying on, or even asking about, salary histories of new hires; and 3) requiring broader explanatory information from employers about pay disparities by broadening the comparisons from “equal” work to “substantially similar” or “comparable” work, shifting the burden to employers to produce reasons for disparities that exist in their salary structures. The article explains how these developments move beyond the substantive prohibition of pay discrimination to focus on process, with the potential to shift discrimination policy from the litigation framework of traditional discrimination law to a governance approach that encourages dynamic, ongoing, and proactive efforts by private organizations and stakeholders. The significance of these reforms is dramatic because the new laws alter and shape the numbers and signals that circulate in the job market, including both intra- and inter-firm speech. Still, the article argues that the reforms are piecemeal, primarily at the state level, they are heavily contested, and some of the most promising initiatives for systematic wage transparency have been halted.

Keywords: pay equity, pay disparities, pay discrimination, #metoo, wage disparities, anchoring bias,

JEL Classification: J31, J71