[HN Gopher] Equilibrium Effects of Pay Transparency
___________________________________________________________________
Equilibrium Effects of Pay Transparency
Author : jandrewrogers
Score : 57 points
Date : 2021-06-14 21:18 UTC (2 days ago)
(HTM) web link (www.nber.org)
(TXT) w3m dump (www.nber.org)
| cinntaile wrote:
| You don't really need to make up a theoretical model for this.
| Just analyze Norway or Sweden where pay transparancy exists to
| discover how it impacts pay. I remember reading that it reduces
| overall pay as the model here predicts, but I don't remember the
| source.
| busterarm wrote:
| This could also have to do with Scandinavian social tendencies,
| where doing excessively better than your peers financially is
| seen as being in poor taste.
|
| The pay transparency leading to wage equilibrium is just
| enforcement of the societal expectation. There is also very low
| class mobility there compared to, say, the US.
| Kranar wrote:
| The idea that Scandinavian countries have lower class
| mobility than the U.S. goes against almost every study and
| observation on the issue. Here is the World Economic Forum's
| findings [1], which places Scandinavian countries at the top
| across a host of factors including income, education, and
| health.
|
| I'd also be careful about placing much emphasis on things
| like culture, not because countries are homogeneous
| culturally, but because often when people talk about how
| culture in Europe is so drastically different than culture in
| the U.S., they are referring to stereotypes that are mostly
| at the margins and don't often have much of an impact on
| socioeconomic factors. As humans, we have a tendency to focus
| on superficial differences and exaggerate those differences
| to explain away phenomenon.
|
| I highly doubt you'd find a credible study indicating that
| Scandinavians will forgo attaining a higher income and a
| better quality of life just so they can fit into a mold and
| satisfy some kind of cultural tendency, but if you do have
| any such studies for review I'd be very happy to see them.
|
| [1] http://www3.weforum.org/docs/Global_Social_Mobility_Repor
| t.p...
| busterarm wrote:
| This report is almost entirely studying the ability of
| people to move up from poor to middle class. That's one
| kind of mobility sure and those countries focus social
| programs heavily on evening out everyone's income. That's
| exactly what I was saying.
|
| What I'm talking about wrt low mobility is how often people
| in those countries go from poor or average to wealthy or
| from wealthy to average or to poor. Generally wealthy
| people stay wealthy there and average income people stay
| average income. That study's data supports this -- it's
| very easy to obtain a mean income if you had less; after
| that movement is very low. This should be obvious but if
| you have very low income inequality then there's very
| little potential to be either rich or poor.
|
| This isn't even a criticism! It's great that people can
| generally earn a living there. I'm just stating what
| everyone seems to know there -- that it's very hard to
| become wealthy and generally looked down upon as a goal.
| Scandinavians don't like to boast. Startup costs for new
| businesses are high and you can't just go buying up tons of
| real estate to rent out to people because land ownership is
| heavily regulated. I can't even buy an apartment as a non-
| resident foreigner (in Denmark) without a very difficult to
| obtain government approval. Danish monetary policy is
| having its banks charge customers penalty rates for having
| a meager cash savings.
|
| In the US we have much greater swings in fortune, good and
| bad. Heck, I've been both a millionaire and homeless within
| my lifetime. That kind of outcome is absurdly unlikely in
| Scandinavian countries.
| pydry wrote:
| A non theoretical model's results wouldnt be able to eliminate
| confounding variables in Finland/Norway. Did pay go down
| because of pay transparency or because of 17 other variables
| that were changing at the same time? No way to tell.
|
| A theoretical model is likely trash - you can pretty much
| reverse the outcome by tweaking a couple of assumptions.
|
| The only way I can think of that might work would be to measure
| the effect on pay for similar jobs across a state border -
| where one side implemented pay transparency and the other
| didn't (similar to how the Dube, Lester, Reich study was
| constructed).
| theptip wrote:
| The reason this doesn't work as well as you'd hope is that
| there are confounders that make it difficult to apply Norway's
| experiences to the US. The design of using a "natural
| experiment" where a localized change lets you measure
| before/after at a discontinuity is a good way of solving this.
| That's what this paper looked at to test their model.
| occz wrote:
| Pay transparency exists in Sweden? You mean like taxable income
| being part of public records?
| cinntaile wrote:
| Yes. That should be pretty accurate since most people only
| work at one job and don't switch each year.
| karatinversion wrote:
| I'm not familiar with Sweden, but this is how it works in
| Finland. The data are not published online, but can be
| queried by phone or in person from the tax office. National
| newspapers publish lists of the top earners each year when
| the data are published; here is one example (in Finnish),
| including everyone with income over EUR100,000:
| https://www.iltalehti.fi/verokone
| mellavora wrote:
| Yes, taxable income is part of public records in Sweden.
| rkangel wrote:
| The model skips an important part of the reasoning - some people
| might _deserve_ to be paid more because they 're more valuable
| (due to being more productive or whatever the equivalent is in a
| given industry). Pay transparency means that if you want to pay
| someone more they have to be able to justify it. In a well
| managed company you need to have some form of employee assessment
| system to judge how well they're doing. This is already true so
| that good people get rewarded, but becomes even more important
| with transparent pay because you have to be able to point to it
| and say _this_ is why that person gets 50% more than you. You
| have to be able to have real conversations like "they brought on
| 2 new clients and delivered all their projects on time, whereas
| your last project was on budget but two weeks late". Being good
| and useful (and comparing salaries at other companies) provides
| the employee upward leverage on price (the inverse version of my
| role play above).
|
| That said - I don't disagree with the conclusions of the paper
| (showing correlation between pay transparency and reduced pay),
| but I don't think it's an important conclusion. Pay is a
| frequency distribution. Talking about the mean/median of that
| distribution is less important than making there there are good
| reasons for the people at either ends of it (e.g. "I'm at the
| lower end because I'm female). To put it another way - I'm more
| worried about inequality than overall pay level because the
| people in the middle are fine, it's people at the bottom who need
| help.
| BeFlatXIII wrote:
| The problem with specific justifications is that many roles do
| not have objective KPIs like this. How do you compare the worst
| teammate on a successful project with a superstar on a project
| that was doomed from the start?
|
| For that matter, there are also the office intangibles that
| don't show up nicely on an evaluation but do cause problems
| when nobody does them.
| rkangel wrote:
| These are all problems that exist already and are just
| highlighted by pay transparency. I agree that they're
| difficult problems, but they're important ones.
|
| You definitely can't do a proper employee evaluation by a
| completely objective set of numerical KPIs (even in places it
| seems possible like sales numbers, it results in gaming the
| system and knock on negative effects). On the other hand, you
| can definitely have a consistent system for looking at the
| different areas of people's performance and judging how much
| they've added. It takes some effort to get right, and there
| will always be an element of subjectivity but it is possible
| to do a decent job at it.
| xwolfi wrote:
| I dont think it's possible tbh, it will always have to be
| subject to market forces.
|
| It's not up only to one company to reward optimally, it's
| the entire network which provides employment alternatives
| to underpaid employees that will eventually lead to an
| optimum.
|
| For instance, I joined my first local company as an
| immigrant from a vastly different culture and was the only
| foreigner. It caused issue as I knew little about the way
| people interacted and they had trouble accepting my
| particularities. I was blocked out of suspicion, under
| constant worried monitoring, for fear of rocking a status
| quo that had lasted for a decade, and was paid well below
| market rate for what I could have done.
|
| Well, gladly a few months in that environment let me learn
| the ropes of my new culture, I was able to quickly change
| job while selecting a more balanced company, and eventually
| tripled that initial salary in 4 years, by switching
| position or job.
|
| I dont want just performance assessment by humans, it's
| also good to have an open employment network you can adapt
| to and that can adapt to you. This is something that doesnt
| exist in my original socialist country and create intense
| misery, with a 10% unemployment rate.
|
| In comparison, my new ultra capitalist country has 3%
| unemployment and provides new job opportunity every week,
| at the cost of a small effort on my side to rectify a
| position of weakness. Employee performance is tied to a
| social environment that is sometimes nonsensical to an
| individual judged as a failure, it is important to balance
| this reward mechanism with outside competition too.
| 908B64B197 wrote:
| > How do you compare the worst teammate on a successful
| project with a superstar on a project that was doomed from
| the start?
|
| Superstars typically avoid these types of projects.
| hammock wrote:
| This seems like it might not be a holistic model.
|
| Pay transparency might result in lower wages _at the transparent
| company_ , as underpaid employees jump ship to another company -
| leaving only the lower-value companies being perhaps more fairly
| paid.
|
| That doesn't mean lower wages overall for all workers involved,
| though. The ones that jumped ship may be getting much more
| somewhere else, raising the average in a way that wasn't looked
| at in this model.
| anothernewdude wrote:
| All the good workers end up being contractors anyway.
| let_me_ask_this wrote:
| The model is complete nonsense.
|
| If you are an employer in a jurisdiction with pay transparency,
| and you need to get a superstar employee, you just create a
| titled position for them. Then you can justify paying them 350%
| the average wage.
|
| The paper claims that there will be a wage equilibrium. Yes, for
| average employees there will be a wage equilibrium, and average
| employees will see their wages increase because of this.
|
| The paper tries to claim that this wage equilibrium will
| negatively affect superstar employees. This is complete nonsense.
| It bases this on the assumption that employers cannot justify
| discriminating between normal employees and superstar employees.
| But this is an unwarranted assumption. Literally just give the
| guy a title. Secondly it assumes that even for these superstar
| employees their wage would reach an equilibrium. This is another
| misguided assumption, because these superstar employees are not a
| fungible resource like the rest of the employees in the same
| occupation. They very likely possess unique experience and
| skillsets. So the pay of other superstar employees should not
| have any bearing on how much they themselves get paid.
|
| Basically the model seems to think that somehow all the employees
| are equal and entirely fungible, but at the same time some
| employees somehow manage to negotiate much higher salaries.
|
| Now of course I am not an economist so it is ridiculous to
| believe that I have found the fatal flaw in a published paper,
| but because of the political nature of such articles I find it
| hard to trust the "hard numbers". I remain skeptical.
| Gatsky wrote:
| If you are hiring someone to do a specific job which is
| different to other roles then sure you can create such titled
| positions. But if they are basically doing similar work to
| others (Just 10X better or whatever), then a fancy title isn't
| really going to fool anyone.
| Retric wrote:
| Coworkers can actually see how productive someone is,
| assuming they are actually 10X that's not a problem. I have
| worked with people that I thought should be making bank.
|
| The only issue is people outside your organization, but they
| have no idea what a given title means. Scrum Lord's make
| 500k, wonder what they do?
| raisedbyninjas wrote:
| Some coworkers can see high performance. If the
| quantitative performance is only 30% higher, it may not be
| apparent. If there is a qualitative outperformance, the
| dullard coworkers may not realize the impact.
| ballenf wrote:
| Some types of high productivity are easily visible, some
| aren't.
|
| The dev who can whip out tons of stable code is easily
| measured. The dev who fights to stop an unneeded re-
| architecure or veto feature requests that would have
| maintenance overhead unjustified by their value is harder
| to judge. And yet that veto may be the equivalent of 2-3
| FTEs savings.
| Afton wrote:
| Haha, when I had been a software dev for a year, I
| interviewed at MS and they asked what my biggest success
| was. I said it was convincing an architect and 3 FTEs
| that they didn't need to spend 2 months on a 100%
| solution, given that we had all the pieces of an 90%
| solution ready at hand.
|
| They did not seem impressed. I did get hired though...
|
| More seriously, I've met several people who really
| struggled to get recognized officially for their work.
| One was someone who was just _amazing_ at cross team
| collaboration. Specifically, we were a small group, doing
| an important strategic project, but we needed some work
| from other teams that were serving the companies larger,
| single product. It was hard to get them to free up a
| couple of dev-days, even when we had the explicit support
| up and down the management chain. She was amazing at
| getting the ICs on the team to get on board. But really
| struggled during review cycles because a fair amount of
| her work wasn 't traditional lines-of-code/jiras.
|
| Another example was a developer who was a _king_ at
| driving customer solutions through the dev team. He was a
| developer, and even though he 's probably responsible for
| millions in not-lost-sales, he struggled to get the
| recognition he deserved.
|
| Anyway, just agreeing with some examples from my
| professional life.
| naturalauction wrote:
| >Now of course I am not an economist so it is ridiculous to
| believe that I have found the fatal flaw in a published paper,
| but because of the political nature of such articles I find it
| hard to trust the "hard numbers". I remain skeptical.
|
| I admittedly haven't read the paper properly, but did study
| economics at undergrad and read many similar papers. This is
| how a lot of economics works, you end up with published papers
| claiming completely different results because of small
| differences model assumptions. Multiple models can be
| consistent with observed data while providing vastly different
| policy implications. If you want to look at a well publicized
| example (though I think it might have to do more with different
| econometric assumptions) look at the research published on the
| Mariel boatlift and its impact on labor markets. See here -
| https://www.bruegel.org/2017/06/the-mariel-boatlift-controve...
| mjburgess wrote:
| More depth: https://www.vox.com/the-big-
| idea/2017/6/23/15855342/immigran...
|
| Which shows the original result standing and the
| "controversy" was caused by the later subsample having a
| different (racial) composition.
| mulvya wrote:
| Right, what is the spread of salaries among star and journeymen
| players in professional sports leagues?
|
| The Indian cricket league IPL has a public auction every year.
| Salaries range from 2 million at the top to 20/30K at the
| bottom. And most players are towards the bottom.
| saurik wrote:
| > Our model predicts that transparency reduces the individual
| bargaining power of workers, leading to lower average wages.
|
| But, are those of us advocating for pay transparency trying to
| increase the _average_ wage, though, or trying to reduce pay
| disparity?
| slumdev wrote:
| In other words: Is it worth decreasing disparity if the only
| way to achieve it is to make us all poorer?
| saurik wrote:
| How does decreasing the average imply we are "all" poorer?
| Literally 99% of everyone could be making more money, but if
| one person who was only making more money because it could be
| done in secret is now making considerably less, then the
| average would still go down. I don't know anyone who actually
| cared about "average wage"...
| sokoloff wrote:
| Why ask others to guess what your motivations are if you can
| instead tell us?
|
| Reducing disparity _within a company_ is surely achievable and
| almost inevitable.
|
| I don't personally believe it's desirable in endeavors where
| value contributions can be heavily unevenly distributed,
| because it likely leads to the company being unable to employ
| the very top value contributors as another company can [and
| likely will choose to] pay them more, which is consistent with
| the main claims in the article.
| lsiebert wrote:
| yeah, as best I can tell you absolutely can pay someone more
| if they are better at their job under equal pay laws.
|
| In California for example, the equal pay act requires 'equal
| pay for employees who perform "substantially similar work,"
| when viewed as a composite of skill, effort, and
| responsibility.'
|
| https://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm
|
| Someone who contributes more inherently must have greater
| skills and/or put in greater effort, and likely greater
| responsibility, given they are accomplishing more tasks.
|
| You can pay differently based on a seniority system, a merit
| system, a system that measures earnings by quantity or
| quality of production, or another bonafide factor such as
| education, training or experience.
|
| Here's a copy of that law, it's pretty short.
|
| https://leginfo.legislature.ca.gov/faces/codes_displaySectio.
| ...
| sokoloff wrote:
| MA law is fairly similar. My concerns around transparency
| are mostly individual privacy concerns rather than
| believing that employees (or even regulators) can't
| understand generally why two people could justly be paid
| different quantities of the local currency.
|
| No place is (yet) mandating perfect sameness of the latter
| and I don't expect that to be policy in my lifetime or
| while we have the concept of money as a society.
| saurik wrote:
| > Why ask others to guess what your motivations are if you
| can instead tell us?
|
| Because directly stating "the authors of this paper
| misunderstood the purpose of pay transparency: it doesn't
| matter what the average pay becomes, as the goal was to
| reduce pay disparity" is a more forceful statement that makes
| more assumptions and simply isn't as friendly as asking it in
| the form of a question (which might be taken as a socratic
| dialog, but that also feels more friendly to me than a
| lecture).
| sokoloff wrote:
| When you make and state assumptions about what others want,
| that's [frequently] bad.
|
| When you make statements about what you want, that's good
| for discourse.
| aeternum wrote:
| I wonder how they would explain CEO pay transparency resulting
| in significant pay bumps.
|
| Individual bargaining may decrease within the company, but will
| make it easier for other companies to poach underpaid
| employees.
| versale wrote:
| > Our model predicts that transparency reduces the individual
| bargaining power of workers, leading to lower average wages.
|
| So, it's in employers' interest to make the salaries transparent,
| isn't it? I bet the model is incomplete.
| akdor1154 wrote:
| > So, it's in employers' interest to make the salaries
| transparent, isn't it? I bet the model is incomplete.
|
| Not necessarily - without transparency, an employer might
| decide to hire Dr Super Engineer, and might be happy to pay her
| 2x the mean wage of their existing engineering team.
|
| With transparency, they might choose not to hire her, because
| they are only happy to pay her 2x if the existing engineering
| team are not aware, and she might refuse to take the job if
| they won't give her 2x.
| callmeal wrote:
| >With transparency, they might choose not to hire her,
| because they are only happy to pay her 2x if the existing
| engineering team are not aware, and she might refuse to take
| the job if they won't give her 2x.
|
| What's stopping them from creating a new role/position/title
| that pays 2x?
| lsiebert wrote:
| Nothing, but there's no need for that, because there's
| nothing stopping them from paying her 2x for the same
| position, based on the actual skills and experience someone
| has.
|
| You can totally pay people different wages under these laws
| for the same position, if they are better at their job, you
| just have to show that that's why.
| dolni wrote:
| Employers are already intrinsically motivated to pay as
| little as they can get away with. Isn't the fact that
| they are willing to pay more the best kind of proof?
| ElViajero wrote:
| That is a very good point. If employers have the information,
| and they could already share it to lower salaries. Why are they
| not doing it?
|
| Or something is missing, or the employers are going to realize
| their mistake and implement transparency.
| sokoloff wrote:
| I'm in favor of a light version of salary transparency.
| ("Here's the anonymized spread of compensation and you can
| find where you land in the spread.")
|
| I'm not in favor of publishing the individual salary
| information of people who joined my company without that
| publication being part of the bargain. (I view it as a
| serious privacy violation whether I publish "here's what XYZ
| makes" or whether I publish enough data that lets a data
| scientist figure out which point in the dataset is XYZ with
| greater than 80% certainty.)
| callmeal wrote:
| >I'm in favor of a light version of salary transparency.
|
| In countries with salary transparency, (the ones I've
| worked in anyway), there is usually a published grid of
| roles, and salary ranges. Similar to how the government
| does things[0]. Companies then make use of "benefits" to
| reward better performing employees, since those benefits
| are not part of salary.
|
| [0]: https://www.federaljobs.net/salarybase.htm#SALARY_TABL
| E_2015...
| Mauricebranagh wrote:
| Doesn't seem to work for CEO pay :-)
| jl2718 wrote:
| I think this is conflating two separate effects. One is pay
| transparency, and the other is legislated pay equity.
|
| Legislated pay equity will always result in lower wages simply
| because the employer is legally unable to raise their bid for
| talent. No surprises there.
| OhNoMyqueen wrote:
| Bargaining power is mainly dependant on offer and demand; it can
| be low, or it can be high, depending on how valuable you are to
| the company. Pay transparency will simply increase the number of
| employees who will try to bargain. I guess that if you're not
| valuable enough that could backfire for everyone. If you do are
| valuable the company will just need to pay.
| stuaxo wrote:
| The company is made up of people, and people have biases in who
| they value hence these inequalities.
___________________________________________________________________
(page generated 2021-06-16 23:03 UTC)