Thursday, June 13, 2019
Jeffrey Meli & James Spindler, Salary History Bans and Gender Discrimination
A number of important jurisdictions have recently enacted salary history bans to combat the gender pay gap. This paper examines the effect of such bans by developing a novel, tractable economic model of unconscious bias in the workplace: some firms consistently but unconsciously under-evaluate the productivity of their female workers. In a Bayesian setting, a worker and his or her employer learn about worker quality over time by observing worker productivity; a worker’s salary thus conveys information about the employer’s inference of worker quality. A lateral employee market exists, and female workers who find themselves underpaid may choose to switch firms. We find that, under assumptions of non-strategic firm behavior, bans can reduce the gender wage gap, but do so at the expense of high-performing women; switching from discriminatory employers requires high-performing women to give up their history of high performance, and they may be effectively trapped at discriminatory firms. When firms are strategic (meaning they infer the reasons for employees’ switching behavior), bans do not reduce the gender wage gap; adverse selection results, which has an even more pronounced effect of trapping high-performing women by imposing greater switching costs on them. We find that a well-functioning job-switching market ameliorates unconscious bias and the gender wage gap, and that the wage gap (and the welfare of working women, particularly high-performers) is better addressed through policies that promote efficient job switching.