If a Law Bars Asking Your Past Salary, Does It Help or Hurt?

Laws prohibiting employers from asking job candidates about their past compensation before making a salary offer are gaining momentum, aimed at reducing pay disparities and other obstacles confronting women and minorities.

The premise is simple: Judging an applicant’s worth from his or her previous salary can perpetuate pay gaps that arise from discrimination — or make it hard to get in the door at all.

Laws banning the practice have taken effect in New York City, Delaware and California in recent months. But the way some researchers see it, such laws are likely to be ineffective or even backfire. For example, employers who can’t ask about prior salary might assume that a female candidate would accept less money than a man, because women make less on average.

“It seems like the general social impulse is, ‘We don’t like employers using particular information, so we’ll tell them they can’t use it anymore and assume that’s the end of the conversation,'” said Jennifer Doleac, an economist at the University of Virginia. “But if they cared enough about it to ask it to begin with, they probably care about it enough to try to guess.”

Doleac pointed to some recent studies, including one on which she was an author, showing that employers engaged in precisely this kind of guessing after several cities and states prohibited questions about candidates’ criminal records early in the application process. In her study, employers appeared to assume that young black and Hispanic men were more likely than members of other groups to have a criminal conviction and hired fewer of them once the policies were in place.

But the consequences may not be as clear when it comes to salary history. Some academic evidence suggests that the new laws may help women in certain circumstances.

To anticipate the effects of such laws, it’s worth exploring why employers ask about a candidate’s salary history in the first place. Here are a few reasons.

If employers know what a candidate previously made, they effectively know how little that person will accept.

“On one level, I’d like to pay people the least amount of money to get the most amount of benefit from that person,” said Adam Klein of the employment law firm Outten & Golden, who has represented many workers in discrimination cases.

“Under that market-efficiency construct, why wouldn’t you pay women less?” Klein said, channeling a hypothetical employer who can ask lower-paid women about their salaries. “It makes business sense.”

Several economists said a ban on questions about salary history would probably prompt such employers to engage in what’s known as statistical discrimination — relying on group averages in place of information they were previously able to obtain about an individual. In doing so, employers will be further enabled by another feature of the recent salary history laws: They typically allow job applicants to disclose their previous salary voluntarily. As a result, some employers may feel comfortable making lowball offers to women, because they assume applicants will speak up if they make significantly more than the employer’s offer. Those who don’t speak up will be deemed to have made less.

This could, in turn, leave women worse off than before, since they tend to be more reluctant to bargain than men, as a range of studies have documented.

“By adding that hoop — putting them in a position where they have to negotiate more — I imagine it widening the gender gap,” Doleac said.

By asking what the candidate currently makes and paying the same or slightly more, an employer may simply want to ensure that an offer is accepted and that the new hire is satisfied — but may be oblivious to the risk of perpetuating pay disparities.

“What we are seeing is the myth of the sneaky employer,” said Andrew Hoan, president of the Brooklyn Chamber of Commerce.

“In Brooklyn, a high percentage of all firms in the borough are 50-person firms or less,” Hoan added. “The CEO is the person making the offer. Frankly, he or she has no time to go around and create comparable stats. All this stuff they’re doing now is simply streamlining the process.”

Where this is true, banning salary-history questions could help substantially, advocates say.

“In companies that are treating people the same, and not thinking about how their behavior might differentially harm people, this type of law raises awareness of it,” said Joelle Emerson, founder and chief executive of Paradigm, a firm that advises employers on promoting diversity. “It forces companies to sit down and say: ‘OK, why were we doing this before? How should we set compensation now that we don’t do it this way?'” At Dime Community Bank, which employs about 400 people at 29 branches in the New York City area, the standard job application asked candidates for their salary history until shortly before the New York ban took effect in October.

Angela Blum-Finlay, the bank’s head of human resources, said that she had already begun de-emphasizing salary history in determining compensation beforehand, and that she was asking hiring managers to use competitive benchmarks for different positions instead.

Finlay said that it was counterproductive for employers to try to squeeze candidates on compensation, especially in a tight labor market.

“We are, at Dime, trying to be an employer of choice, a place people want to come,” she said. “If I lowball you coming in, I’m not going to make you feel valued.”

Standard economic theory holds that workers are paid in line with their productivity, so a higher salary should imply a better worker.

In effect, employers may also be using salary on the front end of the hiring process — to help determine whom they want to interview — rather than solely on the back end, when preparing an offer.

But restrictions on asking for salary information can play out very differently in those situations. When employers want to know how little money a worker will accept, and the law prevents them from asking, they may rely on cruder information, like stereotypes.

But when employers want to know how good a worker is, they have several alternatives to considering salary history, many of them more revealing. They can, for example, interview the candidate, read letters of recommendation, and talk to former employers and co-workers. In a recent study, economists John Horton of New York University and Moshe Barach of Georgetown University conducted an experiment on a prominent online freelancing platform and found that employers responded in precisely this way.

During a roughly two-week period in 2014, half the employers in the experiment were no longer able to view the wage history of prospective workers, as they had in the past, while the other half could continue to see workers’ wage history.

Compared with employers who had the wage information, those without it ended up interviewing and hiring workers who, on average, had made significantly less money in the past. When employers could no longer consult salary history, they expanded the pool of workers they considered and went to greater lengths to evaluate them.

“You’re widening the top of the hiring funnel,” Barach said. “It doesn’t allow you to as easily throw people away.”

He and Horton acknowledged that because this approach required spending more time collecting information, employers might not find it worthwhile when filling a low-skilled or entry-level job. In those cases, they might retreat to stereotypes involving gender or race, as other economists have suggested.

But “for some range of jobs,” Barach said, “more upfront costs could have benefits down the road. If you actually talk to someone, interview them, it will allow you to locate a high-quality candidate.”