One goal of New York City’s new Pay Transparency Act is to close the persistent pay gap between men and women. By requiring companies that hire to post salary ranges with job descriptions, the theory goes, applicants will have more information about what a particular job is worth and more leeway to negotiate the best offer.
This, in turn, could mean that women’s and black people’s salaries are finally more in line with white men’s.
I hope that the law will help close these wage gaps. I also hope it will help another group of people: younger workers.
Too many young people are currently groping in the dark when it comes to making informed decisions about what to study in school and what jobs to do after graduation. If many of them are clueless, it’s only because clues are so hard to find.
Online databases like Fairygodboss and Glassdoor have attempted to fill the data gap by crowdsourcing data on salaries, but this approach has limitations; It’s not always clear where these jobs are based, how many years of experience they require, or what type of responsibility they involve. The same job title can have completely different meanings in different organizations. And it’s hard to know how trustworthy even revealed numbers are.
The result of the information vacuum is that few of us know if we’re being paid fairly – even when we have years of experience in the workforce. While this is most obviously true of those who are underpaid, the overpaid can be misled in other ways as well.
In a 2021 payscale survey, half of workers who were paid above or above average incorrectly believed they were underpaid. In a 2015 study, only 21 percent of overpaid workers said they were being paid above market rates. Such employees unnecessarily suffer more from low morale than those who know exactly how well they are being compensated.
A high level of education does not protect one from grossly underestimating what other people earn. When a Wharton professor, Nina Strohminger, asked her class of future business titans to estimate the average American salary, a quarter of them thought it was over six figures, and one figured it was $800,000 a year. The real number? $45,000.
Such compensation delusions are common at both ends of the income scale. An influential study by Sorapop Kiatpongsan and Michael Norton showed that most people have no idea how much CEOs make. Respondents estimate that CEOs make about 30 times more than the average worker. In fact, CEOs make far more—350 times as much.
Obviously we don’t know how the other quintile lives. But it should be clear by now that we don’t really know how much people in our own socioeconomic class make either.
New York City’s new law aims to fix this by requiring the salary range to be included in the job description. This distinguishes it from other US laws with similar goals. Other places require disclosure of salary ranges, for example, to current employees upon request or to applicants who have passed the initial interview.
This keeps the information out of the public domain. New York law opens the door to anyone curious about a specific career path.
While salary confusion knows no age, it’s especially costly for workers who are just starting out. The first 10 years of work are decisive for salary development. It can take a decade to recover from the misfortune of slipping into a recession.
While older workers have larger, broader networks – and therefore may be able to research salary options by asking around – younger workers without these contacts are more likely to operate in the dark.
This is especially true for those who are first in their families to college, whose parents aren’t big networkers themselves, or in families where talking about money is taboo.
Personal finance gurus blithely advise recent grads to “do research” before making any major decisions, ignoring how difficult that data is to find. Business majors might be surprised to learn how little they can command with an average base salary of just $47,850, according to Glassdoor data. This places them squarely between fashion design and international relations students and not far ahead of the notoriously underpaid philosophy majors.
And how are you supposed to know if grad school is a worthwhile investment without a clear idea of what the return could be? It’s not surprising to learn that film school doesn’t pay off. But there are many jobs that require or heavily fund postgraduate degrees — teaching, museum curator, therapist, librarian, and speech therapist, to name a few — that don’t pay much. Even lawyers and doctors can have trouble paying their school debts.
By providing more detailed data — the kind that comes from job postings rather than average starting salary — the new New York law could also encourage young people to follow their passions by reassuring them that some jobs don’t pay as badly are as they were led to believe. For example, many aspiring writers were pleasantly surprised to learn last week that a travel writer can earn six figures if their salary is spontaneously disclosed.
Clearing up confusion about compensation could have wider implications for the economy as a whole. If a free market is to work, well, free, workers need a certain amount of information.
In a recent NBER newspaper, low-income earners assumed they wouldn’t earn much more by changing jobs. But administrative data on workers who changed jobs showed that these assumptions were wrong. “If workers had the right beliefs,” they estimate, between 10 and 17 percent of low-wage jobs would be “unprofitable.” Low-paid employers relied on these workers to remain uninformed.
When employers start sharing salary ranges in their job postings, it means a lot more than telling potential employees what a job is worth.
It gives job entrants more information about the career path they can expect. And it has the potential to bring more daylight into the dark corners of the economy.