Pay transparency in job postings: Trends, trade-offs, and policy design

It can be challenging for low- and moderate-income workers to find jobs and negotiate compensation to achieve financial goals. One factor contributing to this challenge is a lack of information about earnings prospects at different jobs. Historically, information about pay was limited in job postings. Workers had to rely on other sources for this knowledge, such as personal networks or ad hoc reporting to websites such as Glassdoor. More recently, the share of job postings with pay information has soared as some state and local governments have mandated its inclusion.

Transparency in job ads may help employers and employees during recruitment and facilitate more effective pay negotiations for workers. Still, pay transparency laws also come at potential compliance, enforcement, and psychological costs. Design choices can influence the trade-offs associated with pay transparency policies for job postings.

More job postings include pay information

Since 2019, cities and states nationwide have ramped up efforts mandating employers to include pay ranges in their job postings. These efforts have coincided with a dramatic increase in the proportion of job postings that provide pay information. Figure 1 shows this trend using data supplied by the hiring platform Indeed for job ads posted to Indeed or to an employer’s website. The four states—Colorado, Washington, California, and New York—that put into effect policies related to pay transparency in job ads between 2019 and 2023 each saw more than a 50 percentage point increase over that period in the share of job ads with pay information, even though compliance was imperfect.¹

The share of job ads with pay information also increased in all other states during this time, but by only 27 percentage points.² The six states in the Ninth Federal Reserve District—Minnesota, North and South Dakota, Montana, and parts of Michigan and Wisconsin—followed the national trend.

Figure 2 shows that postings in the Ninth District’s six states saw a steady rise in the use of pay information between 2019 and 2023 despite the absence of direct state and local policy. Among these states, the increase in the share of postings with pay information ranged from 27 percentage points in Michigan and Wisconsin to 38 percentage points in both of the Dakotas. To date, legislatures in Michigan, Minnesota, Montana, South Dakota, and Wisconsin have introduced pay transparency legislation.

Potential benefits of transparency in job ads

Employers may benefit from being transparent about their pay in job ads. Providing pay information upfront could help employers focus their recruitment process on candidates for whom the pay package is a good fit. This could save employers from spending costly staff time interviewing top candidates for whom their compensation is not competitive. In addition, being transparent about pay could demonstrate a commitment to pay equity for existing and prospective employees.

Workers, too, might benefit from pay transparency in job postings. With better information about the potential pay range for their next job and similar roles, individuals may be more able to focus their applications on jobs with suitable compensation, select jobs that better fit pay objectives, and negotiate higher salaries.

Individuals with limited initial information about pay opportunities might be most impacted by the law.³ Workers at low-wage employers tend to underestimate how much they could be paid if they switched jobs. Women and people of color might be limited by poor access to pay information due to current and historical discrimination and income disparities.⁴ These populations may stand to uniquely benefit from additional transparency. To the extent that access to information can put workers on a more level playing field, it could reduce entrenched pay disparities.

Some research from other countries implementing pay transparency laws for job postings finds early evidence of increased pay and reduced gender pay gaps.

Potential costs of transparency in job ads

These potential benefits come with potential costs. One potential drawback of pay transparency for employers is that it can encourage comparisons among employees and consequently reduce employee perceptions of fairness, trust, and satisfaction. This could affect employee morale.

Research has found that comparisons are particularly detrimental to morale and related employer responses (such as lowering wages for high earners) when workers directly observe their colleagues’ pay information. In the case of transparency in job postings, impacts on morale may occur if existing employees feel they are treated unfairly compared to new employees.

Implementation costs could also be high for both employers and policymakers. Hiring managers may not know the competitive market pay for the roles they are hiring, and they may have to modify existing pay practices to ensure that employee pay is in line with the pay that will be posted.

Policymakers, too, face challenges with enforcing a pay transparency law. As shown in Figure 1 above, compliance remains far from perfect in states that require transparency.⁵ Moreover, even when some firms follow the letter of the law, the information they provide may not be helpful to job seekers. For example, some companies in New York posted a salary range from $50,000 to $180,000 or $140,000 to $450,000.

In what different ways are states implementing transparency in job ads?

Policy design can influence the costs and benefits of pay transparency policies related to job ads. Existing state and local policies have had some important differences in the information they require in a posting and the employers they affect.

California and New York only require postings to include the pay range, while Colorado and Washington also require a general description of the benefits and other types of compensation to be offered. Displaying only a pay range might be administratively easier for firms, but for individuals seeking a new job or negotiating higher pay, information about bonus and commission compensation or other benefits may be important. Including these benefits in transparency laws could also prevent employers from sidestepping the intent of transparency laws by shifting compensation between salary and benefits.

Requirements based on employer size also differ across states. For example, Colorado requires employers with at least one employee to comply, while California and Washington’s laws only affect employers with more than 15 workers. Requiring the smallest employers to provide pay information may help current and prospective employees better negotiate pay, with compensation information for these workplaces less available from other sources. However, the smallest employers may also be particularly impacted by an added administrative burden of complying with the law. Enforcement for small employers may be difficult for governments as well.

Remote workers are also treated differently in different states. For example, Colorado requires employers to provide pay information for any remote or hybrid position that could be performed in Colorado. New York only covers postings for which the prospective employee will be reporting to an office or supervisor in New York. Policies that cover a wider range of employers help more applicants access pay information, while narrowing the scope of policies can focus compliance and enforcement efforts.

As more states enact pay transparency laws, the treatment of remote workers may entail additional complications. Because the details of different states’ pay transparency laws vary, compliance can be challenging for companies working across state lines. Coverage of remote work across more states may also lead employers to post less informative pay ranges if they adjust compensation for multiple geographies.

In addition to the specific design of policies related to job ads, policymakers can consider various tools to address information asymmetries in the job search process. Some states, such as Nevada, require employers to share salary information only with individuals who have completed an interview. This policy design makes comparisons between existing and new employees less likely to occur, and serious applicants will receive pay information before negotiations. However, applicants who have not been interviewed will not have access to pay information from other potential employers to take into consideration with their offer, and both the employer and employee will have wasted time if the pay is not competitive.

Learning from experience

Policymakers in communities nationwide are weighing the benefits and costs of pay transparency policies. Pay transparency in job postings can help employers target recruitment efforts on the best-fit candidates and enable employees—particularly low- and moderate-income workers, women, and workers of color—to choose jobs and negotiate pay more effectively.

At the same time, such policies might generate compliance costs for employers, enforcement challenges for governments, and consequences for employee morale. As states experiment with pay transparency in job postings, we will learn more about how these policies can be designed to maximize benefits while minimizing drawbacks.

The authors thank Nick Bunker for providing the data used in the article and for his insightful feedback on an earlier draft.

Endnotes

1 Colorado, California, the District of Columbia, Hawaii, Illinois, New York, and Washington state have at some point passed laws mandating the provision of salary information in postings, but only our four states of focus had laws in effect during the period studied. Other states, including Connecticut, Maryland, Nevada, and Rhode Island, require employers to provide the salary range at some point in the hiring process. An employer’s risk for a fine due to excluding pay information or posting an overly broad range depends on the state’s enforcement capabilities.

2 Data point differs from that indicated in Figure 1 due to rounding.

3 The impact of pay information depends both on baseline levels of information as well as the ability to effectively use that information. Groups that have low baseline information about pay may also be less able to use that information due to cultural factors surrounding negotiation practices or barriers to job mobility. The net impact of pay transparency in job postings is thus theoretically ambiguous.

4 Income Distributions and Dynamics in America (IDDA), a data tool from the Federal Reserve Bank of Minneapolis’ Opportunity & Inclusive Growth Institute, is a resource for exploring data on income disparities over time.

5 An employer’s risk for a fine due to excluding any pay information or providing a posting with an overly broad range depends on the enforcement capabilities of the state. Primarily done by state departments of labor, much of the compliance work is conducted by individuals filing complaints against companies for not following the law. If a company is found guilty, the state has the ability to issue a fine. For example, Colorado can impose fines on violators ranging from $500 to $10,000, but according to recent articles is said to be pursuing citations and reminders more often than fines.