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12
Sinha, Sourav, Salary History Bans: Strategic
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Gap (January 24, 2022). Retrieved January 4, 2024,
from https://ssrn.com/abstract=4025580.
13
Bessen, James E. and Meng, Chen and Denk,
Erich, Perpetuating Inequality: What Salary History
Bans Reveal About Wages (June 2020). Retrieved
January 4, 2024 from https://ssrn.com/
abstract=3628729.
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Closing pay gaps is important to the
economy, efficiency, and effectiveness
of contract performance because it has
been shown to increase the satisfaction,
commitment, and motivation of
employees.
4
When workers feel that
they are valued and their pay is fair,
they are more likely to be committed to
their employer, which leads to
improved job performance and
enhanced productivity. In contrast,
when employees think they are
underpaid or undervalued, those
perceptions can lead to dissatisfaction.
Worker dissatisfaction is a very strong
predictor of workers’ quit intentions.
5
Consequently, this leads to higher staff
turnover.
6
Turnover is costly to
employers, requiring employers to
invest in new searches, hiring, and
training at the same time that they are
losing the contributions of the departed
worker. Kuhn and Yu
7
estimated the
costs of employee turnover in small
retail sales teams using daily sales data
and an advance notice requirement and
found that turnover has a negative
impact on productivity, especially when
it involves high-performing workers or
workers with longer tenure. Kuhn and
Yu’s study estimated that 10 percent
higher turnover is about as costly as a
0.6 percent wage increase. Thus,
reductions in turnover can improve
Federal contractor and Federal
Government—procurement efficiencies.
A growing body of evidence indicates
that compensation history bans
effectively reduce pay gaps. Davis,
Ouimet and Wang
8
evaluated
compensation history bans covering all
public sector employees in 36 states.
They found that on average,
compensation history bans lead to a 1.5
percent increase in wages of women
relative to men, though this decrease in
the gender pay gap was driven in part
by overall wage decreases of around 3
percent in the new hire sample. Mask
9
studied the effect of compensation
history bans on workers who enter the
labor market during recessions. During
a recession, increased competition
forces inexperienced job market entrants
to accept lower wages than those who
start their careers during an economic
boom. This penalty does not reflect
workers’ skills, experiences, or ability to
do their job but simply the misfortune
to enter the labor market during an
economic downturn. In other words,
workers who had the misfortune of
working in areas with larger economic
shocks have worse employment and
wage outcomes years later, unrelated to
their own initial skills or experience.
10
This effect is referred to as ‘‘scarring,’’
defined as the negative long-term effect
that unemployment has on future labor
market possibilities.
11
Mask found by
breaking the linkage between past wages
and current offers, compensation history
bans could reduce this scarring effect.
Moreover, Mask found that
compensation history bans increase job
mobility, hourly wages, and weekly
earnings for scarred workers relative to
non-scarred workers, and reduce the gap
in wages caused by scarring.
Several working papers support the
claim as well. For example, Sinha
12
analyzed the effects of U.S. salary
history bans with the option to
voluntary share information and
showed that these policies narrowed the
gender pay gap significantly by 2
percentage points, driven almost
entirely by an increase in female
earnings. Another working paper by
Bessen, Meng and Denk
13
found that
following salary history bans, employers
posted wages more often and increased
pay for job changers, particularly for
women (6.2 percent) and non-whites
(5.9 percent). A working paper
published in the NBER Working
Series
14
showed that the gender
earnings ratio increased by 1 percent in
states with salary history bans, and that
the increase was mainly driven by
workers who switched jobs, especially
women and non-whites.
2. Compensation history bans were
found to increase the pool of applicants
to Federal contractors who might have
relevant skills or experiences but who
otherwise might not apply. Better
aligning hiring and compensation
decisions with workers’ skills and
experiences results in a broader
applicant pool for Federal contractors,
thus increasing efficiencies in federal
procurement.
If workers know that Federal
contractors base hiring and
compensation decisions on workers’
past pay, and in turn, that past pay
reflects arbitrary factors, workers may be
less likely to seek new positions with
Federal contractors because they know
that their past pay may hamper their
ability to secure a job offer or to receive
higher pay. This likely is especially true
for workers disadvantaged by current
hiring and pay-setting practices. In turn,
this effect may limit applicant pools for
Federal contractors, thereby reducing
the availability of workers with relevant
skills and experiences and reducing
Federal contractor productivity.
For instance, a Harvard Business
Review article by Bessen, Denk and
Kossuth
15
reported that job seekers or
applicants are more likely to apply if
salary history is banned. Barach and
Horton
16
found that without access to
applicant wage histories, employers
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