Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - WAGETRANS (Wage transparency in companies)

Teaser

Enabling employees to assess their wages relative to their colleagues is at the heart of the current policy debate about discriminatory remuneration practices. With the goal to improve the bargaining position of female workers and to mitigate gender-based wage discrimination...

Summary

Enabling employees to assess their wages relative to their colleagues is at the heart of the current policy debate about discriminatory remuneration practices. With the goal to improve the bargaining position of female workers and to mitigate gender-based wage discrimination, the European Commission explicitly recommends to implement policies targeted at higher wage transparency, and several member states have recently introduced laws in line with this goal.

In the light of these policy changes, the overall objective of this project was to significantly enhance the understanding of the role of wage transparency for the interaction between employers and employees with the help of controlled economic laboratory experiments. In companies, there is typically little data about the process of negotiations and outcomes of wage negotiations can be the result of many factors that cannot be observed and isolated in field data. Hence, laboratory experiments provide a useful tool to study behavioral reactions of employers and employees to wage transparency.

As part of this fellowship, two subprojects have been conducted that focus on the question how employers and employees manipulate and respond to information about wages in the company environment.

Work performed

The objective of work package 1 was to analyze how transparency affects the wage negotiation process between employers and employees, the resulting wage profiles and subsequent performance. Here, the focus was on the choices of the negotiating parties to make wage information available and on the ability of the interaction partners to exploit the strategic value of wage information. As the basis for work package 1, I designed and implemented an experimental study in which one employer interacts with two employees. After sequentially negotiating the wages with each employee, the employer sends wage offers to the two employees who, upon accepting the offers, perform a working task. Higher performance in the working task yields higher revenues for the employer.

It is found that wage transparency, if it is fully implemented for all employers and employees, indeed affects wage profiles. In particular, full wage transparency is associated with higher wages and a higher frequency of equal wage offers to both employees. At the same time, participants in the role of employees are reluctant to obtain information about offers to other employees when they have the possibility to become informed. In these cases, wage distributions remain largely non-transparent.

In work package 2, it was studied in a similar experimental setting if and how a social norm within the firm may change the impact of wage transparency on the behavioral responses of employers and employees, and what the implications are for the resulting wage structure and work motivation. The main hypothesis was that the acceptance of wage disparities among employees can be increased by a commonly shared norm for wage differentiation. Such a commonly shared norm could be achieved by the provision of information suggesting the appropriateness of either stronger or weaker wage differentiation.

The results show that the provision of norm-relevant information about the appropriate degree of wage differentiation may indeed shift employers’ and employees’ attitudes. However, there is also evidence that the attitudes to wage differences are related to the performance achieved by particular employees. Moreover, employers’ responses to norm information are heterogeneous. For example, when the norm information suggests weak differentiation in wages, some employers still pay substantially higher amounts to high performers. Employees generally accept wage differences when productivity differences exist, but it seems to lower work motivation when the degree of wage differentiation becomes stronger than considered as appropriate.

Final results

The results obtained in the first work package suggest that making wages fully transparent may shift wage levels upwards and increases the frequency of equal wage offers. However, employees in the experiment are reluctant to enforce transparency themselves about offers to other employees. This may imply that policies providing employees the right to become informed about relative wage positions but at the same time leave it to their own initiative whether they really obtain this information may not necessarily lead to higher wage transparency.

The research in the second work package suggests that the provision of norm-relevant information about the appropriate degree of differentiation may shift the acceptance of wage differences. However, norm-relevant information does not lead to a full alignment of employers’ and employees’ attitudes towards wage differentiation. In particular, employees’ performance levels decrease when employers differentiate to a larger extent than the level that employees view as appropriate. These results have clear practical implications for companies as they highlight potential difficulties in mitigating negative behavioral responses towards transparent wage inequality.

Website & more info

More info: https://sites.google.com/view/peterwerner/home/wagetransparency.