Emily Porter works for her local council and is going to do a Master’s in Data, Economics, and Development Policy at the Massachusetts Institute of Technology, argues YES
When information about prices is freely available, the market is able to operate more efficiently. When we talk about labour markets, the prices are wages. Keeping wages private gives power to the employers and makes it difficult to accurately assess pay discrimination.
The United Kingdom has required organisations with more than 250 employees to report their internal gender pay gap since 2017. However, these figures fail to account for differences in the number of hours worked or variations in job requirements. The Office for National Statistics (ONS) collates data in an annual survey, but does not include education or years of experience. Private organisations, like Glassdoor, also collect and report salary data, but largely exclude demographical information.
The European Commission’s new proposal for a Pay Transparency Directive, introduced last month, would require employers to provide information on the initial pay level and the gender-neutral criteria used to define pay levels and career progression. It gives employees the right to request information on average pay levels for workers performing equivalent work, broken down by sex. However, it doesn’t go far enough – there will still be no requirement to make this information publicly accessible.
Pay transparency could not only begin to close the gender pay gap but the labour market could settle on wages that better reflect the price for work. In the labour market, employees are the producers; having this transparency allows them to mould their product, their labour, into what their employer wants to buy. When financial incentives for employees are not clearly defined or lack explanation on how they are tied to each employee’s output, we end up with a labour market muddled with confusion and inefficient matches between employers and employees.
Transparency about the criteria to determine how initial pay and subsequent pay and career progressions are set is key in aligning employees’ output to their employer’s objectives. The EC’s proposal is a step in that direction.
Len Shackleton, an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham, argues NO
The arguments against everybody knowing everybody else’s pay are twofold. First, it is a significant breach of privacy. If all sorts of trivial interactions with businesses and public bodies fall under Data Protection laws, why should something pretty important – our salary, with all it denotes about our personal status – be free for everybody to see? Few people would voluntarily disclose this information, which in small offices or neighbourhoods could well lead to unpleasantness, resentment and hostility, nowadays boosted by anonymous social media.
Second, there are implications for the efficient working of the labour market. Despite the union-led demand that all workers with similar skill levels should be paid the same (the issue in the recent Asda case), shortages of some types of labour need to be reflected in pay differentials which have nothing to do with intrinsic fairness. Otherwise, some necessary work doesn’t get done, while firms find ways to dispense with workers who are overpaid in relation to market forces.
Moreover, managers are aware that some people are better workers, and thus more important to the organisation than others – and this also needs to be reflected in higher pay. Such differentials are difficult to maintain with ever-greater openness. Theoretically, this can be handled through performance-related pay schemes, but these are very difficult to design for complex jobs and are usually bitterly opposed by union activists. Far easier for managers just to pay everybody the same and tolerate poor performance (you could of course dismiss workers who are not up to speed, but that’s costly to do given employment protection legislation).
Pay being in the open could also have the perverse effect of reducing employee mobility between businesses, something which economists tend to see as an essential mechanism for increasing productivity. Moving between jobs always entails some costs, and movers expect to be compensated for this by higher pay. Yet if a firm pays extra to a new recruit and everybody knows about it, existing workers may demand that their pay be upped to the level of the incomer. This raises costs to the employer, who will therefore be less inclined to recruit from outside the business.