Perpetuating Wage Inequality: Evidence from Salary History Bans

Abstract

Pay gaps for women and minorities have persisted after accounting for observable differences. Why? If employers can access applicants’ salary histories while bargaining over wages, they can take advantage of past inequities, perpetuating inequality. Recently, a dozen US states have banned employer access to salary histories. We analyze the effects of these salary history bans (SHBs) on private employer wage posting and pay. We develop a theoretical model of firms’ choices between posting wages and bargaining, drawing out the implications of SHBs on wages for different groups of jobs. We then implement a comprehensive causal analysis in a difference-in-differences design. The results show that following SHBs, private employers posted wages more often and increased pay for job changers, particularly for women (6.2%) and non-whites (5.8%). There is also no evidence of adverse selection of workers overall or adverse employer reactions in the short run. Bargaining behavior and the use of salary histories appear to account for much of the persistence of residual wage gaps.