Here’s How the Wage Equity Law Kenney Just Signed Could Hurt Women

Behavioral economics, says Wharton professor Peter Cappelli, tells us that employers will make harmful assumptions about women’s previous paychecks.
Jim Kenney. (AP Photo/Matt Rourke)

Jim Kenney. (AP Photo/Matt Rourke)

In a firm nod to equity, Mayor Kenney signed the wage equity bill on Monday, making Philadelphia the first city to ban employers from asking job candidates about their previous salary.

While some experts say the wage equity law is a step in the right direction, others, such as Wharton professor Peter Cappelli, are warning of unintended ills that have little to do with what Comcast and the Chamber of Commerce recently railed against.

As a professor of management and director of Wharton’s Center for Human Resources, Cappelli’s research in human resource practices and public policy related to employment has made him certain that the wage bill will hurt women once it takes effect. To him, what’s happened with the “ban the box” legislation that swept the nation over the last few years is the perfect model for the kind of catastrophe that will ensue. What was supposed to boost reentry for ex-offenders, a growing body of research shows, has actually proven to be a harmful policy that perpetuates the very racism and discrimination it sought to defeat.

The bill that unanimously passed through Philadelphia’s City Council in December will have just as many unintended consequences as “ban the box,” Capelli says. When Massachusetts became the first state to pass similar pay equity legislation, Cappelli argued that it was a misguided fix. While he doesn’t see the new law creating much bureaucratic difficulty for Philadelphia businesses, he explains in this interview exactly why, according to behavioral economics, it is unlikely to help women or narrow the wage gap.

What led you to be so certain that the wage bill will be harmful to women?
Yes, the wage bill will actually hurt women rather than help them, and a good example why is ban-the-box legislation.

The way ban the box works is that employers aren’t allowed to ask people about felony convictions until after they decide to interview them. One of the things they discovered about that is, on the plus side, more people with felony convictions got to the final stages and were offered jobs. But on the minus side, more young people of color never made it through the process. The reason for this appears to be pretty strongly that the employers wanted to know whether applicants had a criminal record. And because they couldn’t get an answer to that question, they guessed.

So what does “ban the box” have to do with the wage bill and narrowing the pay gap between men and women?
The problem with the wage legislation is that if employers want to know what a woman was paid and they can’t find out, they’re going to guess. And if they guess, particularly given all the rhetoric that women are paid inadequately compared to men, employers are likely to guess that they were lower paid. So the employer is going to start off making a first offer to women that could be much lower than the offer they make to men.

Do you see any other problems with the wage law?
Yes. The other issue is a kind of selection problem. Nothing prevents women from telling the employer their salaries. So those women who have a very high salary would probably share that information. And then the problem is if you’re a woman who doesn’t offer that information, what will the employer assume about you? They’re going to assume that you’re probably really low-paid.

But women will still have the opportunity to negotiate their salary without sharing their wage history. Won’t that give some women a leg up?
Yes, right now they negotiate pretty commonly, and for white-collar jobs especially. They can negotiate, but the difference is in this case the employer makes the first offer for women. If the candidates don’t know any better, the employer will always be making the first offer and that’s going to have a bad impact on the people who are not offering their salaries because typically you don’t want to be the person in a negotiation who’s coming in second. Because your opponent makes the offer first and then you have to respond to it.

So the bill sounds like a nice thing, but once you start thinking about the implications and how employers will respond to restrictions likes this, it ends up being a quirky response. We know from behavioral economics that this is how people respond to situations. We have pretty good evidence about not what just could happen, but in similar situations this is what does happen. You can always bet on the data.

What in your eyes has made a difference for women in terms of pay equity?
If you look at this data historically, in terms of the wage gap, it came down quite a bit from the ’80s through the early 2000s. If you look at women and men doing equivalent occupations, women make about 91 percent of what men make. And what made that happen were laws. The threat of being sued by the government, the EEOC, and also protective legislation made a huge difference.

So do you think local government should make these kinds of legislative decisions?
That reflects the peculiarity of American politics now that we’ve got Democratic cities and Republican states. You have Democratic voters who want something but they can’t get their legislators to do it in the state. So it’s inevitable. You follow what the local constituents want.

But should local government try to alter particular mechanisms of the workplace? I’d say it’s probably not a good idea, particularly because it’s so difficult to anticipate what the unintended consequences are. To find something where you don’t have a lot of unintended consequences is unfortunately pretty hard to do. There are always these “what happens then” questions.

Business leaders are concerned about the law presenting a bureaucratic hassle. What do you say to that?
I don’t actually think it’s such a burden for the employers. It just means they’ve got to come up with a number in advance, which they’re supposed to be doing anyway. They need to figure out how much they think the positions are worth. It just requires that you don’t ask one question. What’s the bureaucratic hassle there? They can put signs up that say, “Thou shall not ask this question in the City of Philadelphia.”

What’s one way you think we can tackle the pervasive wage gap?
I haven’t thought about all the different things you might be able to do, partly because we don’t really have a good reason as to why the gap that is there remains.

But one thing we can do is sponsor classes for people who believe they are marginalized in employment to teach them about the job-hunting process and about how to take interviews and how to discuss questions of pay. If you know how to conduct yourself in meetings and interviews, you do better, and you’re likely to do better on pay as well.

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