Last week, California Governor Gavin Newsom signed SB 1162, a law requiring employers to disclose pay ranges on their job postings. The law puts California on a growing list of jurisdictions, including Colorado, Washington State, and New York City, with “pay transparency” laws. These laws are meant to give job seekers more detailed pay information, which theoretically helps them bargain for better compensation. But in practice, the laws may have the opposite effect. They will give detailed, job-specific information not only to workers, but also to other employers. And armed with that knowledge, employers may decide to peg their rates to the market—a strategy that could depress pay across the board.

The transparency laws sit at the crossroads of two legal trends. In the first, policymakers have increasingly focused on gender and racial pay gaps. For example, during the runup to SB 1162, California lawmakers estimated that the gender pay gap cost the state’s women about $46 billion dollars each year. And they found an even larger gap for workers of color—$61 billion. Similar statistics played a role in New York City, where lawmakers found women earning only 83% as much as men and workers of color earning only 75% as much as their white counterparts.

These gaps have persisted for decades, despite efforts to level them out by law. The transparency laws are only the latest attempt. The laws assume that pay disparities are often hidden from view—to the workers and, sometimes, even to the employers. So they force employers to disclose pay rates publicly. Public disclosure, they presume, will shed light on pay gaps and help workers bargain on a level playing field.  

At the same time, policymakers have also increasingly focused on labor-market competitiveness. Since about 2018, progressive academics have been building a narrative about so-called employer monopsonies. A monopsony is essentially a buyer-side monopoly. Like a monopolist in reverse, a monopsonist can lower its costs by reducing the amount it buys (or, in the case of an employer, by hiring fewer workers). Scholars like Eric Posner have argued that American labor markets are rife with monopsony: markets are increasingly concentrated, workers have fewer choices, and employers wield growing power. Posner has pressed that argument in podcasts, in journal articles, and even in books.

His theme has now caught on with the Biden administration. In July 2021, President Biden announced that he would take an “all of government” approach to boosting labor-market competition. Since then, his Department of Justice has sued to block at least one merger because of its supposed labor-market effects. His Federal Trade Commission has announced new rulemaking aimed at labor-market transparency. Both agencies have said they will consider labor-market concentration in a revised set of merger guidelines. And his Treasury Department has even blamed gender and racial pay gaps on employer monopsonies.

These two trends come together in the transparency laws. While the laws aim to equip workers with better information, they do that by forcing employers to disclose the information publicly. And public information is public for everyone, including other employers. Employers can read job postings just as well as workers can, and they can use what they find to set their own pay rates. In fact, it would be naïve to think that they won’t do exactly that. A hiring manager who sets her pay levels without checking the available data could be reasonably accused of committing human-resources malpractice.

Yes, employers have long had access to pay data through general market research. But the transparency laws will make it easier to find useful data than ever before. Not only will they force employers to publish current pay rates, but those rates will be attached to specific job postings with specific qualifications and duties. So other employers will be able to see exactly how much their competitors are paying for specific services, backgrounds, and skillsets. They’ll be able to benchmark their pay to the market with unprecedented fidelity.

You might think that all this transparency would make markets more efficient. After all, transparency should help workers shop around, which should force employers to bid against one another. And in a perfectly competitive market, that might happen. Think about the stock market: because everyone knows the going price for a stock, bidding is both dynamic and widespread. Price transparency creates more competition, not less.

But if you believe critics like Posner, the stock market is a poor comparison for labor markets. Posner has been telling us that labor markets are hyper-local and increasingly concentrated. They’re likely to be dominated by a handful of employers bidding for the same subset of workers. And in concentrated markets, antitrust theory suggests that information exchanges lend themselves not to open competition, but to oligopolistic collusion.

The theory works like this: Imagine there are only two main employers in a small town. The employers compete for workers and have no agreement on wages. Even so, they have a natural incentive to react to each other’s pay adjustments. If one raises its rates, the other has to respond. If it doesn’t, it risks losing all the best candidates. But each of them knows the other has the same incentive. They know that if they raise their rates, the other will retaliate. And retaliation is unprofitable: it leads to a bidding war and, as a result, higher labor costs. So they both sit on their pay rates as long as possible. The market enters a pay-rate détente.

The employers can maintain this equipoise, however, only if they know what the other is paying. That’s where transparency comes in. Courts have long been skeptical of information-sharing schemes in concentrated markets. Most often, they see these schemes as evidence of tacit collusion; they assume that while employers may formally agree only to share information, their real goal is to suppress wage competition. But in other cases, courts have concluded that information sharing itself violates the law. Its effects can be so anticompetitive that they amount to a restraint of trade even without a formal agreement. And the anticompetitive risk is even higher when the information is candidate- or job-specific. The more specific the information, the better employers can modulate their rates to reduce competition and maximize profits. They can pay the minimum market rate for a given worker without worrying about losing the worker to a competitor.

In other words, the pay-transparency laws hand employers exactly the kind of data courts have long considered the most dangerous. The data is current, detailed, market wide, and job specific. In concentrated markets, it could lead employers to pay less, not more. And because it will be available without any agreement or coordination among the employers, its effects will fall outside the reach of antitrust law. It will effectively give employers the benefit of collusion without requiring them to collude.

The laws, then, may end up as a monument to a different kind of law: the one about unintended consequences. By tinkering with the market to help workers, they will probably do more harm than good. And that result will surprise only those who haven’t followed similar efforts to manipulate markets. Social experimentation is always risky, especially when it’s rushed into. Other jurisdictions should pause before they take the leap.

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