Arming workers with more information will help both the workers and the economy

As Minnesota legislators consider a proposal for pay transparency, they should recognize the profound impact the policy could have on the state’s workforce and economy. This legislation, which would require employers to disclose salary ranges and benefits for open positions, is more than simply a tool for equity; it’s a catalyst for economic efficiency and personal empowerment.

This concept of pay transparency isn’t novel; 10 states have already embraced some version of the proposal. Minnesota’s current approach has elements of Colorado’s regulations established in 2021, but would only affect organizations with 30 or more employees, so it would be amongst the least expansive versions of legislation passed in other states.

So, why do we need this legislation?

Minnesota’s current job market, devoid of pay transparency, can be likened to navigating a supermarket without price tags. Imagine walking through aisles filled with products with no indication of cost. The uncertainty compels you to make choices based on guesswork. 

Upon reaching the checkout, you’re confronted with prices that may far exceed your expectations, leaving you with the dilemma of whether to proceed shortchanged or start your shopping afresh elsewhere, hoping that upon checkout at a different supermarket, prices will be more in line with your expectations. 

In a system like this, supermarkets can charge more for their goods, knowing people are less likely to leave their checkout line and return the items to the shelves, even if it isn’t in their best interest — which does not promote a competitive market.

A job seeker without information about her potential pay is faced with the same scenario — compelled by lack of information to make a hasty and uninformed decision. 

This situation goes against economic theory about competition, which posits that markets work best when information is freely available and barriers do not hinder transactions. 

So why, then, does the job market often operate under a veil of secrecy regarding pay (creating inefficiencies and mismatches in labor allocation) and allow organizations to prey on human biases?

Should you spend time applying for this job? Should you take time off for a third hour-long interview in the middle of a workday? 

The push for pay transparency also addresses an ongoing problem in our economy  — the persistent gender and minority wage gaps. 

According to a National Women’s Law Center report, the lifetime wage gap for women in Minnesota is a staggering $448,000. This lifetime wage deficit is especially pertinent because the recent Status of Women & Girls+ in Minnesota report found that  inequalities in lifetime earnings drive the gender wealth gap.

Imagine a software developer in Minnesota who, despite her experience and positive performance reviews, suspects she’s paid less than her male counterparts. Without access to transparent salary data, her suspicions remain unconfirmed, hindering her ability to negotiate fair compensation.

This legislation would empower this software developer and countless others with the information needed to advocate for equitable pay or, when that isn’t possible, realize that her qualifications make her a candidate for a higher salaried job elsewhere.

This legislation — like the ban on salary history passed last session — is not a silver bullet. Disparities permeate our economy in ways one lonesome policy will not solve. But just as disparities exist because of negative policies over long periods of time, good, equity-enhancing policy can make significant returns over the long term.

Pay transparency is also poised to strengthen Minnesota’s economic landscape by fostering more informed career decisions. Consider the hypothetical case of a mid-career professional contemplating a switch from manufacturing to an expanding clean energy industry. 

She has the skills to make the change. She hasn’t put in the substantial effort to apply, falsely assuming that her job would likely pay her around the same rate she currently makes and, therefore, is not worth the effort — but actually, the transition would yield a significant raise.  

In this situation, this hypothetical worker is not acting irrationally — in fact, many workers, especially those with low-wage positions, underestimate a potential raise from changing jobs. 

The absence of clear salary information makes such a career move a leap into the unknown, fraught with financial uncertainty. Pay transparency demystifies this process, enabling workers to compare potential earnings and benefits directly, facilitating strategic career choices aligning with their skills and financial goals. Even a marginal effect on a worker’s income will have compounding effects throughout her lifetime.

Minnesota’s labor market becomes more efficient by ensuring that workers can make decisions based on better information. Moreover, this level of transparency encourages competition among employers for the best talent, potentially leading to wage growth and improved working conditions. 

On top of that, Minnesota’s workforce would be more effectively allocated across industries, using market forces to shift workers into labor pools with greater need — enhancing productivity and stimulating economic growth.

Pay transparency empowers the workforce by leveling the playing field. With open access to salary ranges, all job seekers — irrespective of their negotiation skills or professional network — have the same critical information at the outset.

The proposed pay transparency legislation in Minnesota represents a pivotal step toward creating a more equitable, efficient and empowered workforce.