New Laws Aimed at Closing the Gender Pay Gap Could Backfire

Employers in California, New York City, and Washington State will soon be required to post salary ranges for open jobs. Will some try to skirt the rules?

A person at a march holds a sign that reads "Close the pay gap."
More Americans will soon know their colleagues' salaries.
Photo By Craig F. Walker/The Denver Post via Getty Images

Early last year Aaron Batilo, a Denver-area software engineer, discovered Colorado employers would be required to include pay ranges for job openings due to a new equal pay law. Though there were other laws in effect at the time that required companies to disclose salary ranges after a candidate had applied or interviewed for a job, or upon request, Colorado was the first state to enact a law asking for such information upfront.

The shift was likely to pose a challenge for businesses that have grown accustomed to setting salaries in an ad hoc manner over the years, and Batilo joked with friends that companies would start excluding job applicants from the state to avoid the headache of sharing salary information. “We assumed it was preposterous,” he said of that possibility.

But in May, a Reddit user noticed some companies were excluding Colorado applicants from applying for jobs. A human resources job posted at Nike, for example, read “open to remote work, except in Colorado.” Companies like Johnson & Johnson and real estate firm CBRE included similar language in their job openings.

“The thing we thought was a joke,” Batilo said, “(was) happening.”

The exclusion of Colorado candidates by firms who weren’t willing or ready to comply with the state’s new salary rules is just one example of the unintended consequences associated with pay transparency laws. Batilo started a website called Colorado Excluded to document job postings excluding candidates from the state, and said at one point he was receiving 40 to 50 submissions a day. In total, Batilo estimates about 230 companies have appeared on the site. Listings that exclude Colorado candidates continue to trickle in, such as a policy support specialist position currently open at Spotify.

But just because companies try to skirt these laws doesn’t mean they’re going away. In the coming months pay transparency laws are set to take effect in New York City, Washington State, and California, with implications for a much bigger group of employers and job seekers. Though legal and pay equity experts say efforts to exclude candidates from certain states are unlikely to continue, new unforeseen effects could arise as businesses work to comply with new laws.

Transparency laws seek to address pay inequities

In recent years more states and cities have started enacting pay transparency laws to address gender and racial pay gaps. Nearly 60 years after the federal Equal Pay Act was passed, women earn 83 cents for every dollar men earn, according to the Bureau of Labor Statistics. The gap widens when comparing white men to Black or Latino women. Some labor economists, however, note the statistic over-simplifies the issue of gender and pay. While women and men are usually paid the same for the same work, for structural and cultural reasons women tend to choose professions that pay less than men, and drop out of the workforce earlier to raise families, trends that are unlikely to be addressed by pay transparency laws.

“Although there are some federal protections in the workplace as far as pay disparities are concerned, they’ve been in place for 50 years and they haven’t done much to help women earn the same as men,” Jessie Danielson, a Colorado state senator who sponsored the state’s pay transparency bill, told Law Week in 2019.

Supporters of the legislation have also said it will level the playing field for job seekers, who typically have access to much less market data on salaries than employers. “We need to respect that a person has a right to determine whether they will be able to pay rent and support their family when they apply for a job,” said Justin Brannan, a member of the New York City Council, in an April statement.

More than a dozen jurisdictions have some form of pay disclosure requirements on the books, according to tracking by human resources publication HR Dive. Currently Colorado, Jersey City, and Ithaca, New York require employers to provide compensation ranges in job postings. Similar legislation will take effect in New York City on Nov. 1. Both California and Washington State—home to big tech companies including Amazon, Alphabet, Meta, and Microsoft—have pay transparency laws set to take effect on Jan. 1, 2023.

Unintended consequences for businesses

With some laws taking effect in mere weeks, employers need to get ready, said Marc Mandelman, an attorney and co-chair of the pay equity practice group at law firm Epstein Becker Green, based in New York City. “There is a lot of complexity that isn’t obvious,” he said of new regulations, “and there are going to be a variety of unintended adverse consequences” as companies manage the law.

For example, what happens when a company posts a job with a salary range, and a current employee with a similar role finds out they’re on the lower end of that range, or even making less? “That may cause some conflict and questions as to why they are not being paid at the top of the range,” said Mandelman. Revealing salary information could make it harder to retain employees, Mandelman said, and put businesses at higher risk of being sued for pay discrimination.

Not only will employees be able to see what their peers are making, but also what their bosses earn, said Kaitlyn Knopp, the founder of Pequity, a compensation software company. “That can be jarring,” she said. “It’s going to hold a mirror up for these organizations about what they are doing. What that looks like externally might not be the prettiest picture.”

Pay discrepancies are rarely created with mal intent, said Knopp. A business may put a lot of thought into their philosophy on pay, but a recruiter could “blow up an offer” to compete for a certain candidate. As the labor market remains tight, “companies are desperately trying to claw these people in,” she said. “That reality will create friction” under these new systems.

Knopp stressed companies will have to be mindful about how they build transparent pay systems before rolling them out. She suggests a “programmatic” approach, backed up by data and a pay philosophy to guide salary ranges at the company. “Rules are going to protect you in the future landscape, where I think pay is going to get more and more transparent.”

Buffer, a company that works with individuals and small businesses to develop their social media brands, made salaries transparent back in 2013, and offers one example of how firms might approach transparency. They did so using a formula that was based on market rates, and what Buffer could afford at the time. The formula is available online and has been tweaked over the years, so anyone can calculate what they’d get paid at Buffer.

The potential concern from employees who see colleagues are making more than them was the reason Buffer started with a salary formula first, said Hailley Griffis, the company’s head of communications. Buffer wanted to “to be able to answer that question with a good reason, and not just, ‘because they asked for more,’” she said.

Roxanne Petraeus, the co-founder of software compliance company Ethena, argued giving employees raises when salaries become transparent isn’t necessarily a bad thing. “We absolutely had issues where we posted a job description for a role, published a salary band, and realized it wasn’t what we had historically paid for that role,” then had to adjust workers’ salaries during their next performance review cycle, said Petraeus of Ethena’s own efforts to make salary bands transparent in recent years. “But that’s an example of things working correctly.”

Will greater transparency lead to better pay?

It’s not yet clear what effect salary transparency laws will have on pay inequities. A study published by the National Bureau of Economic Research in July of last year found such mandates may actually lead to lower average wages, as employers may decline to set high wage standards so they can avoid renegotiating salaries with underpaid workers once those become transparent. State-level transparency laws that allowed workers to share salary information with colleagues lead wages to decline by approximately 2 percent, the researchers found.

Still, other research suggests pay transparency laws can lead to positive outcomes, too. A study published by Nature in February, for example, analyzed salary data for 100,000 U.S. academics, and found the gender pay gap at transparent organizations was reduced by up to 45 percent, compared to those that didn’t disclose salary data. Inequality of pay also dropped by about 20 percent, as wage levels were compressed, with fewer outliers.

“I think it’s a great step in the right direction,” said Knopp of the recent laws. “But I think there’s a lot more work that has to be done to truly solve this issue.” Even when salary ranges are public, she said, disparities could still exist within that range, with men getting paid $50,000 more than peers who are women or people of color, for example. 

As for the potential exclusion of candidates from certain locations, it seems unlikely that more employers will continue to seek workarounds, as was the case in Colorado, said Mandelman. The fact that most companies in New York and California will soon have to make pay transparent is likely to drive employers in other states and cities to do so as well. “The market conditions are going to cause most employers to make a good-faith effort to comply.”

New Laws Aimed at Closing the Gender Pay Gap Could Backfire