Raise wages by banning employers from asking salary history

salary-history-lawDue to the declining power of ordinary workers against powerful employers in general, unfairly low compensation is the unfortunate reality for many Americans today. Layered on top is the subtle but potent discrimination that face millions in the hiring process specifically. As numerous testimonials and studies like this article in the Harvard Business Review have documented, that bias plays out in real and harmful ways for the job seekers even when hiring managers have the best intentions to be a fair employer.

What can we do about it? For one, policymakers should ban employers from asking prospective employees their salary histories before the job offer. Massachusetts did just that in a new bipartisan law enacted this summer. Several lawmakers in Congress are planning to introduce the federal version of the idea as well.

At the core of these measures is the insight that when a prospective employer requires candidates to give their salary history, it creates a power differential that weakens the candidates’ bargaining clout. In effect, that upfront requirement for the job candidate to set the negotiating baseline tilts the whole process in favor of the employer; that’s precisely why employers demand the information. Rather than basing compensation on the needs of the job and the employee’s value, the standard scenario helps employers pay as little as they can get away with. Although it’s a power differential that costs all workers, it also disproportionately harms Black and Hispanic Americans and women because their salary histories tend to be relatively lower and perpetuated with each new job. Over their lifetimes, their compensation may never catch up to white men’s as a result.

Sponsors of the legislation to be introduced in Congress further explained their thinking in a press release here:

The bill seeks to eliminate the wage gap that women and people of color often encounter.  Because many employers set wages based on an applicant’s previous salary, workers from historically disadvantaged groups often start out behind their white male counterparts in salary negotiations and never catch up.  Even though many employers may not intend to discriminate on the basis of gender, race, or ethnicity, asking for prior salary information before offering an applicant a job can have a discriminatory effect in the workplace that begins or reinforces the wage gap.

“Women and minorities often face discrimination in the job application process and in salary negotiations,” said Congresswoman Norton.  “Many carry lower salaries for their entire careers simply because of wages at previous jobs that were set unfairly.  Our bill will require employers to offer salaries to prospective employees based on merit, not gender, race, or ethnicity.”

For more information, see “Governor Baker Signs Bipartisan Pay Equity Legislation,” The Official Website of the Governor of Massachusetts (2016); “Massachusetts: Leading the Way on Equal Pay,” US Department of Labor (2016); and “Closing the pay gap and beyond: A comprehensive strategy for improving economic security for women and families,” Economic Policy Institute (2015).