Inequality in wages: the role of transparency | Financial Journal

SOFÍA JORDAN Economist, member of Red ProCompetencia.


As of May, any employer that publishes a job offer in New York must include the salary of the position, a new law that seeks to reduce the salary gap by reducing information asymmetries. Given this asymmetric reality, increasing transparency in the labor market allows people to have the necessary information to access better positions and benefits, and also allows companies to carry out a more efficient search and recruitment process.

Research by Nobel Laureate David Card and other economists has found that employers have market power to set wages and working conditions. This is because there are restrictions that prevent movements between one job and another from being immediate. In general, a person cannot move as quickly to a better job if their salary or opportunities stagnate.

“Everyone who has looked for a job understands that including salary in a job offer provides valuable information and gives them more bargaining power.”

The main reasons are that people have capacities, preferences and possibilities that determine a limited set of places where they can be employed. And, second, that employers have more information about wages, which gives them a better bargaining position. For this reason, companies benefit financially by asking for rental claims without revealing their willingness to pay.

In general, when a job offer is published, the employer describes the requirements they are looking for and, once they evaluate the applicants, they can choose who is willing to receive the lowest salary among those who meet the minimum characteristics. For this applicant, the effect of an unfavorable negotiation lasts in the long term, because people’s salaries do not change much from one period to another and are strongly anchored to the initial salary. In other words, when a person earns less than the market wage from the beginning, it will be very difficult for him to improve it in the short or medium term.

All job seekers understand that including salary in a job offer provides valuable information. Ensuring transparency and the flow of information is an efficient way to give workers more bargaining power and reduce inequalities in the labor market. Incentivizing competition between employers can also contribute to this goal, because when certain companies compete to hire, they are forced to reveal their salaries and benefits to attract those who work for their competitors. For the same reason, non-contracting agreements must be investigated with the same rigor as product cartels.

In Chile we must implement policies and laws that go in this direction and complement them with coordinated structural measures between authorities in order to promote more equitable labor relations, reduce search and recruitment costs for companies, and improve salaries and employment conditions for people.

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Inequality in wages: the role of transparency | Financial Journal