The Effect of Pay Transparency on Inventor Productivity: Evidence from State-level Pay Secrecy Laws

57 Pages Posted: 15 Jul 2020 Last revised: 28 Jun 2021

See all articles by Huasheng Gao

Huasheng Gao

Fanhai International School of Finance, Fudan University

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Jin Zhang

Monash University

Date Written: June 25, 2021

Abstract

We examine the causal effect of pay transparency on innovation performance of firms and inventors. Our test exploits the staggered adoption of state-level pay secrecy laws, which enhance pay transparency in the workplace. We find a significant increase in innovation by firms headquartered in states that have passed such laws relative to firms elsewhere. This effect is more pronounced for firms in states with lower levels of pre-existing pay transparency. We further show that pay secrecy laws promote innovation by increasing the productivity of incumbent inventors (especially minority inventors), attracting minority inventors from other states, and enhancing the diversity of inventor teams.

Keywords: Pay Secrecy Laws; Pay Transparency; Innovation; Inventor Productivity; Patents

JEL Classification: G30, J28, K32, O31

Suggested Citation

Gao, Huasheng and Hsu, Po-Hsuan and Zhang, Jin, The Effect of Pay Transparency on Inventor Productivity: Evidence from State-level Pay Secrecy Laws (June 25, 2021). Available at SSRN: https://ssrn.com/abstract=3632849 or http://dx.doi.org/10.2139/ssrn.3632849

Huasheng Gao

Fanhai International School of Finance, Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China
2165642222 (Phone)
2165642222 (Fax)

Po-Hsuan Hsu (Contact Author)

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Jin Zhang

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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