How Much Do You Make? 3 Reasons Salary Transparency Can Be Good for Business

When former Google employee Erica Baker began publishing co-workers' salary information on an internal spreadsheet, it didn't go over well with management, according to news reports of her recent Twitter confession. But for many of the employees who submitted their salaries or used the spreadsheet information to ask for equal pay, the candor about wages was a positive force.

While employees at some companies have long been discouraged from sharing their salary information with co-workers, stories like Baker's Google salary experiment show that salary transparency can help promote equal pay and employee empowerment. But beyond helping employees, a growing body of academic research finds that salary transparency can actually be good for business as well.

In our recent report, "Is Salary Transparency More Than a Trend?" we evaluated dozens of academic studies of the impact of growing workplace transparency. This research overwhelmingly suggests that greater transparency in the workplace is transforming today's labor markets for the better.

Rise in Salary Transparency

In recent decades there has been a gradual shift away from traditional workplace secrecy and toward more transparent salary policies. One reason for this is that job seekers and employees are demanding more transparency in a digital world in which all other types of information are readily available online. For example, Internet searches for the phrase "salary transparency" grew about 63 percent from March 2014 to March 2015, according to Google Trends data.

Younger workers, many of whom are accustomed to sharing the minutiae of their lives with online audiences, are likely to continue demanding greater salary transparency as they move throughout their careers. And services like Glassdoor, which empower job seekers and employees with anonymously shared salary data of the masses, continue to grow in popularity. With the rapid growth of online sharing of workplace information, there's no putting the genie back into the bottle when it comes to pay transparency.

In the wake of this growing popular interest in transparency, a growing number of economists and management researchers are studying how transparency in salaries, company culture, work-life balance and other workplace characteristics are affecting today's labor market. This research reveals clues about how the rise in pay transparency may begin affecting broader economic indicators in the coming decades, including workplace productivity, unemployment durations, wage inequality and the gender pay gap, worker migration patterns and trends in employee turnover.

3 Positive Effects of Salary Transparency

Based on our reading of the economic literature on salary transparency and information in the workplace, there are three compelling reasons why greater salary transparency may be good for business as well as workers. They include:

1. Increased productivity. Research shows that employers that switch from pay secrecy to a policy of opening up compensation data can experience large and long-lasting boosts in productivity. Studies find that when pay information remains secret, employees commonly overestimate others' pay, which can hurt their job satisfaction.

2. Increased numbers of female applicants. Workplace transparency can help boost the number of female applicants for jobs by lowering uncertainty about pay and working conditions. Studies find that women are much less likely to negotiate over pay than men, but also find that job transparency can help close this salary "negotiation gap" between men and women, leading women to be much more likely to negotiate over wages than under a regime of workplace secrecy.

3. Improved hiring decisions and shorter periods of unemployment. Access to more and better information in labor markets improves job matching and can shorten unemployment spells. Some economists even argue that improved information can prevent workforce dropouts and "discouraged workers" in the same way that far more costly government worker retraining programs can.

As social sharing of online information continues to grow, salary transparency is likely to become much more commonplace in the coming decades. Employers today who are embracing this trend are increasingly seen as pioneers in recruiting and retaining employees. And job seekers are finding it easier than ever to pinpoint the right companies for them. From an economist's view, the move toward pay transparency is a win-win for both business and workers.