Talent Management Column Misguided Fix

How Massachusetts' efforts to shrink the pay gap between women and men will actually make matters worse.

Wednesday, September 7, 2016
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Most large employers are now paying attention to issues associated with women in their workplaces. Whether this is a sign of a tightening labor market, the power of women as consumers or a rise in overall consciousness about the issue is an open question. State and local governments, at least in Democratic regions, are jumping on the topic as well.

The big women's issue in the workplace is pay equity, spurred by the evidence that women are paid less than men for equivalent work. President Obama has repeatedly pointed this out, saying women make less than 80 cents for every dollar that men earn. That statistic, not surprisingly, has been repeated a lot. The fact that this piece of data is very misleading is a crucial part of the story below.

Many suggest that new legislation in the state of Massachusetts will become a model for other states. The law takes as its starting point the fact that women earn less than men and that, in many jobs, candidates negotiate for pay. What happens if, as is often the case, the prospective employer asks job candidates what they earned in their previous job? Well, if women on average earn less than men, then women candidates will, on average, report lower numbers than men. And that, the argument goes, will lead employers to offer them less money. So the new law prevents employers from asking what you earned in your previous job.

To be fair, employers are allowed to ask and to check on what candidates earned in their previous job after they have made the candidate an offer, although why they should want to do that isn't entirely clear. Many observers are suggesting that this law may be a model for states elsewhere.

Wow, this seems like a convoluted way to make progress on pay equity. My guess is that it will make things worse.

Most experienced HR people were brought up with the idea that employers don't need to know what candidates earned in a previous job. If we really know what the job is worth, through job analyses and checking the market, why is it important to know what the candidate earned before? 

Yes, I understand hiring is different now, that in many organizations -- especially smaller ones -- hiring personnel just don't abide by HR practices. Hiring managers fall in love with candidates and then try to sell them to the central administration based on paying them what they believe will get the candidate to say yes. Everything is negotiated as a result, and how much someone made before seems to be kind of a behavioral benchmark.

But here's the problem: We've got employers that seem to really care what candidates earned before, and the law says they can't ask. What will they do? They will guess, based on what they know about the candidate. If they believe that women earn 80 percent of what men earn, they will guess the current pay of women candidates is 20 percent less than male candidates.

Here's where the 80-percent figure is misleading. When you compare the pay for men and women doing similar jobs with similar education and experience requirements, hours of work and so forth, the gap shrinks to about 94 percent. Most of the 80-percent gap is accounted for by the fact that, on average, men and women do different kinds of work. Of course, the fact that there is any kind of gap at all is a bad thing. But now, when employers guess how much a woman candidate is earning, they are inclined to use the 20-percent-less-than-men figure rather than 5 percent.

We know this guessing happens based on lots of research on similar legislation. (Last month, I wrote about studies showing that "ban the box" legislation -- whereby employers can't ask about felony convictions, at least early on -- has been causing employers to hire fewer young black and Hispanic men because they've been guessing that these men had criminal backgrounds.) 

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Here's another problem: Nothing prevents candidates from telling employers their salaries. If I'm an employer, I'm going to guess that someone who doesn't offer up salary information is likely to be lower paid. Many people believe women are less likely to negotiate for salaries, so less likely to start out by saying, "I'm paid this much now, and I want so much more." If that's the case, employers may well assume that women are paid less because they aren't speaking up. If employers ask and get salary information from everyone, the playing field is at least a little more even and more based on evidence than conjecture.

None of this suggests that employers that guess are in any way bad. This is just the way most people process information, especially if they haven't been trained to do it otherwise. It is more a reminder of just how difficult it is to try to deal with human biases through legislation, and how likely it is that such laws not only complicate the employer's job, but can actually make matters worse.

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. His latest book is "Will College Pay Off? A Guide to the Most Important Financial Decision You'll Ever Make."


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