Despite state and federal laws designed to combat pay discrimination, a persistent gender wage gap remains in America. Even at the beginning of their careers, women earn less than their male colleagues performing the same job with the same education and experience, and that wage gap grows over the course of women’s careers.
“What is your current or prior salary?” is a question that many job applicants dread, with good reason. Employers’ use of this information in the hiring process has a disproportionately negative impact on women and people of color, who face conscious and unconscious discrimination in the workplace and, consequently, are paid lower wages, on average, than white, non-Hispanic men.
Employers’ requests for an applicant’s salary history in the hiring process, and reliance on that information to determine compensation, forces women and, especially women of color, to carry lower earnings and pay discrimination with them from job to job. As a result, several federal courts and an increasing number of cities and states are prohibiting employers from basing compensation on an employee’s salary history.
How employers use salary history
- Some employers use salary history to determine a new hire’s starting pay, providing a standard percentage increase over the new hire’s previous salary or otherwise directly correlating the new hire’s pay to her salary history.
- Some employers use salary history to screen out job applicants whose salaries, the employer determines, are too high or too low to allow them to be considered for the job. The employer assumes that someone whose salary is “too high” would not be interested in a lower-paying job and that someone whose salary is “too low” does not have sufficient skill, knowledge, or experience for the position.
- Some employers ask for salary history as part of the salary negotiation. Even if the employer is willing to pay an applicant significantly more than she previously made, the negotiation is likely to be affected by “anchoring,” a cognitive tendency to heavily weight the first piece of information encountered during a decision-making process. Because of this cognitive bias, a low prior salary may have an outsized effect on the salary negotiation and the employer’s perception of a reasonable salary for the employee, depressing the resulting salary offer.
- Some employers use salary history to evaluate and compare applicants’ job responsibilities and achievements. As with screening, this practice assumes that prior salaries are an accurate measure of an applicant’s experience and achievements, and not the product of discrimination, bias, or other factors that are simply irrelevant to the employer’s business.
Reliance on salary history in the hiring process harms women
Women job applicants, especially women of color, are likely to have lower prior salaries than their male counterparts. Indeed, women working full time, year-round typically are paid only 83 cents for every dollar paid to their male counterparts—and compared to white, non-Hispanic men, women of color face even larger wage gaps. Even when factors like race, region, unionization status, education, occupation, industry, and work experience are taken into account, 38 percent of the wage gap remains unexplained. Because women systematically are paid less than men, employers who rely on salary history to select job applicants and to set new hires’ pay will tend to perpetuate gender- and race-based disparities in their workforce. Indeed, in a recent study, a significant percentage of employers who conduct pay equity audits found that relying on applicants’ salary history is a key driver of gender wage gaps within their company.
There are several reasons why women, on average, will be responding to the “What is your salary history” question with lower prior salaries than men. And they have nothing to do with women’s skill, knowledge, experience, negotiation abilities, or fit for the job.
- First, it is well-documented that women, and especially women of color, face overt discrimination and unconscious biases in the workplace, including in pay. For example, in a recent experiment where scientists were presented with identical resumes—one with the name John and the other with the name Jennifer—the scientists offered the male applicant for a lab manager position a salary of nearly $4,000 more. By using a person’s salary history to evaluate her suitability for a position or to set her salary, new employers allow past discrimination to drive hiring and pay decisions. In other words, this practice forces women to carry pay discrimination with them from job to job.
- Second, women are more likely to have worked in lower-paid, female-dominated professions that pay low wages simply because women are the majority of workers in the occupation.9 Relying on applicants’ salary histories to set starting salaries perpetuates the systemic undervaluing of women’s work, even where women enter male-dominated or mixed-gender industries.
- Third, women still shoulder the majority of caregiving responsibilities and are more likely than men to reduce their hours or leave the workforce to care for children and other family members. Seeking salary history harms women hoping to reenter the workforce, since their last salary may no longer reflect current market conditions or their current qualifications.
Some employers claim they need to know the salary history of applicants in order to determine the market value of an applicant or the position. But salary is not a neutral, objective factor. Indeed, it often reflects the historical market forces which value the equal work of one sex over the other. Salary history is also an imperfect proxy for an applicant’s value or interest in a position. For example, relying on salary history can lead to depressed wages for individuals who have previously worked in the public sector or in non-profits and are moving into the private sector; it can deprive senior individuals with higher salaries who are looking to change jobs or re-enter the workforce the opportunity to be considered for lower paying jobs they might seek.
The EEOC and several federal courts have held salary history cannot justify paying women less
Since 2000, the Equal Employment Opportunity Commission has instructed that reliance on salary history does not, by itself, legally justify paying women less. The EEOC explains that “permitting prior salary alone as a justification for a compensation disparity ‘would swallow up the rule and inequality in compensation among genders would be perpetuated.’”
Many courts, including several federal Courts of Appeals, have agreed, rejecting employers’ arguments that basing pay on salary history alone is a neutral “factor other than sex” justifying paying women less and lawful under the Equal Pay Act. These courts point to the fact that salary histories reflect historical discriminatory market forces.
However, some courts have broken with the EEOC’s position on salary history, and have permitted employers to rely on employees’ salary history to justify paying women less for the same work. This mix of court decisions makes it all the more important to enact legislation clearly banning the harmful use of salary history in the hiring process.
A rapidly growing number of states and localities have enacted salary history bans
In August 2016, Massachusetts became the first state to prohibit employers from seeking salary history from job applicants. Since then, cities, states, and counties across the country have rapidly followed suit. Recent research into state salary history bans shows that they are already helping to narrow gender and racial wage gaps. Research also shows that salary history bans appear to have had an immediate and dramatic effect on employer transparency, motivating employers to advertise salaries more often.
In 2019, Alabama also enacted legislation prohibiting employers from retaliating against job applicants for refusing to provide their salary history.
In Congress, the Paycheck Fairness Act and the Pay Equity for All Act have been introduced which include prohibitions on employers screening job applicants based on their salary history or requesting applicants’ salary history.21 On April 15th, 2021, the Paycheck Fairness Act passed the U.S. House of Representatives with bipartisan support.
In June 2021, President Biden issued Executive Order 14035 on Diversity, Equity, Inclusion, and Accessibility in the Federal Workforce. The Executive Order requires the Office of Personnel Management to consider whether to “prohibit agencies from seeking or relying on an applicant’s salary history during the hiring process to set pay or when setting pay for a current employee, unless salary history is raised without prompting by the applicant or employee.”
Many companies have recognized that using salary history in the hiring process is neither a necessary nor a good business practice
An increasing number of companies are announcing that they are no longer seeking salary histories from job applicants, including Amazon, American Express, Bank of America, Cisco Systems, Facebook, Google, GoDaddy, Progressive, Starbucks, and Wells Fargo. And the Greater Boston Chamber of Commerce publicly supported Massachusetts’ legislation prohibiting reliance on salary history, which was subsequently enacted in 2016.
- In ending this practice, many of these companies acknowledge that this practice perpetuates wage gaps, and that employees should be paid based on their experience, skills, track record, and the responsibilities they will be assuming, not on what they happened to be paid in their past job.
- Ending reliance on salary history can also help businesses attract and retain diverse and qualified talent. As a human resources professional stated in Forbes, the practice of seeking salary history from job applicants is “intrusive and heavy-handed . . . It’s a Worst Practice . . . It hurts an employer’s brand and drives the best candidates away.”
- Moreover, a recent study showed that employers are limiting their talents pools when they rely on salary history. When salary history information was taken out of the equation, the employers studied ended up widening the pool of workers under consideration and interviewing and ultimately hiring individuals who had made less money in the past.
- Finally, by ending reliance on salary history, a practice that unjustifiably perpetuates gender and racial gaps in a workplace, employers will also be able to decrease their exposure to litigation.
Ending employers’ reliance on salary history is an important step in closing the wage gap. And since the wage gap has barely budged in more than a decade, we need to act now to stop this practice.