Salary history and employer demand: Evidence from a two-sided audit

Summary

The research paper "Salary history and employer demand: Evidence from a two-sided audit" by Agan, Cowgill, and Gee investigates the intricate impact of salary disclosures on employer demand and hiring outcomes. The study employs a field experiment described as a "two-sided audit," involving hundreds of recruiters who evaluated over 2,000 fictional job applications for software engineers. The methodology involved randomizing both the presence of salary questions in job applications and the candidates' voluntary disclosures of their previous salaries, for both male and female applicants. This design allowed the researchers to observe how recruiters' perceptions and offer behaviors changed based on salary history information, even in states where employers are legally restricted from asking about prior compensation. Applicants in the study were given varied salary histories, including a built-in gender wage gap where female salaries were set 15% lower to mimic real-world disparities. The findings indicate that disclosing a higher salary generally correlates with higher new salary offers, increased willingness to pay from recruiters, and a stronger perception of the candidate's outside options, with similar effects for both men and women. However, the study also uncovers significant trade-offs and nuanced gender dynamics. Recruiters tend to make negative inferences about the quality and bargaining position of candidates who choose not to disclose their salary history. Interestingly, silent women face a lesser penalty for non-disclosure compared to silent men. Moreover, while disclosing a higher salary can lead to better offers, it can also act as a negative signal of a candidate's value (net of salary) for men, potentially resulting in fewer callbacks. This suggests that recruiters may view male wage premiums differently, seeing them less as a signal of quality compared to other factors. Overall, the paper emphasizes that employers primarily view salary history as a signal of competing external opportunities rather than an direct indicator of worker quality. The implications of this research are substantial for both job seekers and policymakers. The findings highlight that current or past salary disclosures can perpetuate existing wage disparities, including those related to gender, despite state-level bans on direct salary history inquiries. The study suggests a complex strategic decision for job seekers: while disclosing salary history *could* increase wage offers for those who receive callbacks, opting not to disclose may lead to negative inferences from potential employers. The observed gender differences in how non-disclosure is penalized and how salary premiums are interpreted by recruiters underscore the intricate and often biased nature of the hiring process. The study further indicates that without direct salary history, employers will still make inferences, influencing demand and offer outcomes.