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Brownbag Seminars: Wage transparency

Wednesday, December 15, 2021, 12:00 pm – 1:00 pm

Abstract: This paper studies how wage transparency can lead to more equal wages. We propose two possible behavioral channels. Under wage transparency workers may be able to 1) directly increase equality in their team, and 2) sort to workplaces with low inequality. We ran an online experiment in which we manipulated whether wages were secret or fully transparent. Participants completed two tasks that map to the two proposed channels: a costly punishment game and a sorting game. The results show that wage transparency affects both types of decisions, and the estimated treatment effects depend on the revealed wages. In particular, when high wage inequality is revealed, participants are more likely to punish their colleagues and sort to a different team, such that the final wage inequality will decrease. Our findings are consistent with the theory of social preferences and inaccurate wage beliefs.