Pay secrecy and the gender wage gap in the United States

In the United States, most employers practice pay secrecy—they forbid workers from sharing information about their earnings with their co-workers.   This is because they believe that employees would be dissatisfied and productivity would fall.  Employers also believe that salaries would rise, as those with lower pay on average would demand similar pay as their fellow workers. 

Scholars fear that this practice inhibits women from learning that they are underpaid compared to men, allowing gender discrimination in earnings to persist.  Lily Ledbetter exemplifies this:  as a manager for Goodyear Tire in the US for twenty years, she was underpaid compared to male managers, and did not realize this until after receiving an anonymous note that informed her of what male managers earned.   Her employer had a policy of pay secrecy.

Although the National Labor Relations Act prevents employers from retaliating against many workers who share information about their pay, pay secrecy is commonplace.    Consequently, seven states have enacted stronger state legislation prohibiting employers from retaliating against employees who share information about their earnings. 

Although advocates and some legislators believe that pay secrecy reduces pay for women and contributes to the disparity in wages between men and women (known as the gender wage gap), no one has examined this.

I examine this issue by using the states that have outlawed pay secrecy as a natural experiment.  I use the March Current Population Survey data from 1977 to 2012 to run a difference-in-difference fixed effects (by state and year) human capital wage model, controlling for education level, potential work experience, gender, other common explanatory variables, as well as state, year, whether not the state had outlawed pay secrecy, and a variable that interacts the latter variable with gender.  I find that wages for women are 4-5 percent higher in the states that outlawed pay secrecy after such legislation was enforced.  Wages for workers in general, however, were not higher.  Because I control for state and gender,  the results indicate that wages for women are due to enacting laws that outlaw pay secrecy, rather than other state-specific characteristics. These results indicate that state legislation that outlaws pay secrecy can increase pay for women by 4-5 percent and reduce the gender pay gap by 3 percentage points.