Does Transparency Lead to Pay Compression?

NBER Working Paper No. 20558

Issued in October 2014, Revised in February 2016

NBER Program(s):Labor Studies



This paper asks whether pay disclosure in the public sector changes wage setting at the top of the public sector distribution. I examine a 2010 California mandate that required municipal salaries to be posted online. Among top managers, disclosure led to approximately 7 percent average compensation declines, and a 75 percent increase in their quit rate, relative to managers in cities that had already disclosed salaries. The wage cuts were largely nominal. Wage cuts were larger in cities with higher initial compensation, but not in cities where compensation was initially out of line with (measured) fundamentals. The response is more consistent with public aversion to high compensation than the effects of increased accountability.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w20558

Published: Alexandre Mas, 2017. "Does Transparency Lead to Pay Compression?," Journal of Political Economy, vol 125(5), pages 1683-1721. citation courtesy of

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