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

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