Labor Market Consequences of Pay Transparency: Evidence from the Initial Pay Ratio Disclosure

Abstract

This paper examines the labor market consequences of employee-pay transparency for rank-and-file employees. We exploit the introduction of the Pay Ratio Disclosure (PRD), where median employee pay becomes publicly disclosed for the first time, which allows for comparisons of employee mobility for firms with and without the PRD using a difference-in-differences analysis. We find that employees are more likely to depart firms disclosing median employee pay and provide evidence that employee pay comparisons (both within and across firms) serve as a mechanism. We also find evidence consistent with disclosures of median employee pay increasing labor market mobility in the aggregate across geographic locations and industries. Collectively, we provide novel evidence that increased pay transparency facilitates pay comparison within and across firms, which results in greater labor market mobility for employees.

Keywords: median employee pay, CEO-to-median employee pay ratio, pay transparency, pay comparison, employee turnover, labor market

JEL Classification: G18, G30, J31, J53, J63