Interesting research by Cullen and Pakzad-Hurson (2021) that suggests pay transparency gives more wage-negotiation power… to employers! How? Because employers communicate high-fidelity information about the wage they are willing to pay, and can thus “credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others under transparency.” That is, when you try to negotiate a raise, they can say without bullshitting you, “If I pay you more, I have to pay everybody more, so no.”
How to mitigate this unintended and (for workers at least) deleterious consequence of wage transparency? Counter-intuitively to anyone but a labor economist, you do it by removing individual bargaining power so that it doesn’t affect the outcome. How do you do that? By using collective bargaining power instead… such as unions! Or, in the more precise language of the paper, a “a positive-measure set of workers” that ” seeks to maximize the average surplus of union representatives.” ;-)
So if you’re looking around and seeing some corporate executives get paradoxically bull-ish on wage transparency while remaining deadset against unionization, give ’em the side-eye and wonder, “Wait… you read that Cullen and Pakzad-Hurson paper, too?” Don’t credulously assume altruistic or even mutually-beneficial intentions toward workers, because it could instead be a clever wage-negotiation strategy that (if my interpretation of the empirical results of this paper are to be believed) is harmful to workers since it has no positive externality in terms of employment levels.
And if you’re a corporate executive, definitely find ways to make your wages as transparent as possible. Unless you’ve got a union shop, in which case you’re just wasting your human resource budget to change compensation policy and your public relations budget to give all the credulous LinkedIn members warm fuzzies about you.
These findings call to mind another topic near and dear to my heart: flexible labor-scheduling arrangements with algorithmic surge pricing. No longer unique to the private contractor gig economy, some companies are starting to use these mechanisms even for their W2-receiving employees, believe it or not. The more credible information about prevailing wages that these mechanisms offer, and the high rate at which they offer it… seems like it could reduce individual wage-negotiation power for those workers. Then again, the workers these platforms target (i.e., low wage workers) don’t have much individual wage-negotiation power anyway. It’s us corporate, “knowledge economy” types, many of whom advocate for wage transparency, that might suffer… if this paper is to be believed.
Sigh.