...
Closing pay gaps is important to the economy, efficiency, and effectiveness of contract performance because it has been shown to increase the satisfaction, commitment, and motivation of employees.[4] When workers feel that they are valued and their pay is fair, they are more likely to be committed to their employer, which leads to improved job performance and enhanced productivity. In contrast, when employees think they are underpaid or undervalued, those perceptions can lead to dissatisfaction. Worker dissatisfaction is a very strong predictor of workers' quit intentions.[5] Consequently, this leads to higher staff turnover.[6] Turnover is costly to employers, requiring employers to invest in new searches, hiring, and training at the same time that they are losing the contributions of the departed worker. Kuhn and Yu [7] estimated the costs of employee turnover in small retail sales teams using daily sales data and an advance notice requirement and found that turnover has a negative impact on productivity, especially when it involves high-performing workers or workers with longer tenure. Kuhn and Yu's study estimated that 10 percent higher turnover is about as costly as a 0.6 percent wage increase. Thus, reductions in turnover can improve Federal contractor and Federal Government—procurement efficiencies.
A growing body of evidence indicates that compensation history bans effectively reduce pay gaps. Davis, Ouimet and Wang [8] evaluated compensation history bans covering all public sector employees in 36 states. They found that on average, compensation history bans lead to a 1.5 percent increase in wages of women relative to men, though this decrease in the gender pay gap was driven in part by overall wage decreases of around 3 percent in the new hire sample. Mask [9] studied the effect of compensation history bans on workers who enter the labor market during recessions. During a recession, increased competition forces inexperienced job market entrants to accept lower wages than those who start their careers during an economic boom. This penalty does not reflect workers' skills, experiences, or ability to do their job but simply the misfortune to enter the labor market during an economic downturn. In other words, workers who had the misfortune of working in areas with larger economic shocks have worse employment and wage outcomes years later, unrelated to their own initial skills or experience.[10] This effect is referred to as “scarring,” defined as the negative long-term effect that unemployment has on future labor market possibilities.[11] Mask found by breaking the linkage between past wages and current offers, compensation history bans could reduce this scarring effect. Moreover, Mask found that compensation history bans increase job mobility, hourly wages, and weekly earnings for scarred workers relative to non-scarred workers, and reduce the gap in wages caused by scarring.
Several working papers support the claim as well. For example, Sinha [12] analyzed the effects of U.S. salary history bans with the option to voluntary share information and showed that these policies narrowed the gender pay gap significantly by 2 percentage points, driven almost entirely by an increase in female earnings. Another working paper by Bessen, Meng and Denk [13] found that following salary history bans, employers posted wages more often and increased pay for job changers, particularly for women (6.2 percent) and non-whites (5.9 percent). A working paper published in the NBER Working Series [14] showed that the gender earnings ratio increased by 1 percent in states with salary history bans, and that the increase was mainly driven by workers who switched jobs, especially women and non-whites.