Pay Secrecy and the Gender Wage Gap in the United States

• DOI: http://doi.org/10.1111/irel.12109
• Date: 01 October 2015
• Author: Marlene Kim
• Published date: 01 October 2015

Pay Secrecy and the Gender Wage Gap in the

United States

*

MARLENE KIM

Legislators and advocates claim that pay secrecy perpetuates the gender wage gap

and that the Fair Labor Standards Act (FLSA) should be amended to outlaw these

practices. Using a difference-in-differences fixed-effects human-capital wage

regression, I find that women with higher education levels who live in states that

have outlawed pay secrecy have higher earnings, and that the wage gap is conse-

quently reduced. State bans on pay secrecy and federal legislation to amend the

FLSA to allow workers to share information about their wages may improve the

gender wage gap, especially among women with college or graduate degrees.

There has been a sea change in the workforce since the Fair

Labor Standards Act (FLSA) was passed in 1938. One of the more notable

changes is that few women worked for pay when the law was passed, while

today, most do.

1

To address the needs of the modern workforce, legislation

has amended the FLSA to account for these changes. These amendments

include the Equal Pay Act of 1963, which mandates equal pay for equal work,

regardless of sex. But there have been other proposed amendments that purport

to meet the needs of working women. This paper examines one of the least

known policy proposals: amending the FLSA in order to outlaw pay secrecy.

In this paper, I discuss pay secrecy, its extent, proposed legislation to amend

the FLSA in order to prohibit these practices, and the likely effect of amend-

ing the FLSA to outlaw pay secrecy on earnings and the gender wage gap.

*The author’saffiliation is University of Massachusetts Boston, Boston, Massachusetts. Email: Marlene.

Kim@umb.edu.

The author offers thanks to the U.S. Women’s Bureau staff and former director for their support, the staff

in many of the states that were interviewed for this article, and to the legislators and activists in these states

for their helpful information and comments. Thanks to Reagan Baughman, Michael Carr, Bill Dickens,

Andrew Houtenville, Ju-Chin Huang, Emily Weimers, Catherine Weinberger, Paul Wolfson, Linus Yamane,

and the University of New Hampshire’s Economics Department Seminar for their help, insights, and sugges-

tions. Thanks also to Jesse Rothstein and two anonymous reviewers who helped improve, tighten, clarify,

and find all the typos and errors in this paper. All remaining errors are the author’s.

1

In 1948, 32 percent of women were in the labor force; in 1938, even fewer were (Federal Reserve

Board of St. Louis 2013; Smith 1979;). In contrast, in 2012, 58 percent of women participated in the labor

force (U.S. Bureau of Labor Statistics 2013b).

INDUSTRIAL RELATIONS, Vol. 54, No. 4 (October 2015). ©2015 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

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Using a natural experiment of states that prohibit pay secrecy compared to

those that do not, I examine whether states that outlaw pay secrecy reduce the

gender wage gap. I find that in states that have outlawed pay secrecy, earnings

for college-educated women are greater, reducing the gender pay gap.

Pay Secrecy, Its Prevalence, and the Law

Pay secrecy includes rules, policies, and practices that prohibit workers from

discussing or sharing information about their earnings (Bierman and Gely

2004; Edwards 2005; Gely and Bierman 2003). These include formal policies

written in employee handbooks and informal policies conveyed to workers

sometime during their employment (Gely and Bierman 2003). Advocates and

legislators who have proposed to amend the FLSA by outlawing pay secrecy

argue that pay secrecy perpetuates the gender wage gap: if women don’t know

what other workers are paid, gender discrimination in earnings can continue.

Lilly Ledbetter illustrates this argument. For 20 years, Ledbetter was the

only female supervisor among sixteen male supervisors for Goodyear Tire in

Alabama. She earned less than all these men, including some who had less

seniority, yet she did not know that she was underpaid because her workplace

prohibited employees from discussing their pay. It was only after she received

an anonymous note that revealed the earnings of some of these male managers

that she realized she was underpaid (Greenhouse 2007; National Women’s

Law Center 2013).

Ledbetter is not alone. In the United States, most employees are prohibited

from discussing their earnings. According to a survey conducted in 2010, 61

percent of private-sector workers are either formally forbidden or informally

discouraged from discussing their pay with their colleagues (Institute for

Women’s Policy Research 2010). About one-third of private-sector workers

are explicitly forbidden from doing so because of formal rules or policies not

to discuss their pay, with another third informally discouraged from doing so

(Bamberger and Belogolovsky, 2010; Bierman and Gely 2004; Colella et al.

2007; Edwards 2005; Gely and Bierman 2003).

Yet, for most of these workers, these pay-secrecy policies are illegal.

Section 7 of the National Labor Relations Act (NLRA) protects workers in

“concerted activities for the purpose of collective bargaining or other mutual

aid or protection.”

2

The National Labor Relations Board (NLRB), which

enforces the NLRA, has consistently ruled that discussions of wages are a

2

29 U.S.C. §157 (2003).

Pay Secrecy and the Gender Wage Gap / 649