The frustrations of knowing the salary of your better-paid colleague

Het Financieele Dagblad

Is transparency a good instrument to combat the pay gap? What does academic research tell us about individual responses to the concept of complete transparency? In an article from Het Financieele Dagblad, Professor of Economics of Incentives and Performances at Erasmus School of Economics Robert Dur elaborates on this topic and explores different levels of transparency.

The (gender) pay gap: a confronting and disturbing phenomenon, which even has been given a name owing to its widespread presence. For several years, many groups have tried to gather attention for the problem, each group in its own way. And the problem is real, since the pay gap between men and women in comparable functions with the same experience is at a staggering height of 7%. How are we going to properly address the problem? In the article from Het Financieele Dagblad, a strategy firm and professors advocate complete transparency regarding each individual’s salary.

Not integral transparency

According to Dur, transparency should only be implemented to a certain height. In a recent American study, the researchers discovered that four out of five employees don’t want their salary to be revealed to their colleagues. On a sidenote: in Europe this is even prohibited in a legal-technical sense, since AVG legislature states that personal employee information should never be disclosed without consent. This implicates that employers could face legal difficulties, if an employee objects. Dur: ‘On an aggregated, unpersonal level, transparency is of practical use. If one knows the earnings in an industry and of certain professions, it is possible to ascertain whether your salary is on par or not’. However, much needs to be done to accomplish actual transparency. Data is available, but hard to find.

Erasmus School of Economics

Recently, a research has been conducted by Teresa Bago d’Uva, Associate Professor of Health Economics and Diversity Officer at Erasmus School of Economics, and Pilar García-Gómez, Associate Professor of Applied Economics on salary differences of the school and whether these differences are explicable. According to Dur, it is not certain if the findings of the study will lead to actual changes, but at least it promotes the debate on the pay gap and rank differences. ‘And that’s good. We know from foreign research that salary transparency can significantly reduce this form of inequality’.

On an individual level, however, transparency is not desirable. People tend to dislike the focus on financial compensation, since other employment terms often play an important role as well. Examples are growth and training opportunities, holidays and scheduling freedom. Dur points to another argument against complete transparency: ‘we know from research that income inequality is being underestimated. For many people who earn less than their peers, transparency is a very frustrating wake up call, especially if they aren’t able to change these conditions’. An eminent demonstration of this finding is Norway: since the income of every citizen is accessible via a databank, perceived wellbeing has dramatically diverged.

More information

The full article from Het Financieele Dagblad, 19 January 2021, can be downloaded above.