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Should Salaries & Wages Be Publicly Disclosed?

When I was a graduate student studying labour market economics, I could never understand why economists were so devoted to models that were based on assumptions about the world that any moron could see were just wrong.  Take for example the issue of information.  Classical labour market economics assumes that the free hand of the market will ensure that the marginal productivity of labour equals the marginal cost of labour.  That happens because employees have full information of all alternative job opportunities and will therefore quit low paying jobs if higher paying jobs are available.  This in turn puts pressures on employers to provide competitive packages in order to attract workers, and so on and so on.

The point is that the model assumes employees have full information about terms and conditions of employment throughout the market.  Only then can they make rational choices about what job to accept and how much money to demand.  But any idiot can see that there is not full information about terms and conditions of employment.  Often we don’t even know what our co-workers earn, let alone what people earn at other employers.  So I have always be baffled why economists don’t demand regulation that would require public disclosure of terms and conditions of employment as a market correcting measure (to correct information asymmetries, to speak economic ease).  It wouldn’t cost employers much to produce this information.

We do require conditions of some jobs to be disclosed in Canada:  high paid executives, public sector workers (like professors!), and every unionized job, since collective agreements are usually treated as public documents.  That would suggest that the conditions of work of about 1/3 of jobs in Canada must be disclosed.  But what about the other two-thirds?  Why is that information considered private, and isn’t that secrecy distorting the efficient operation of the markets?  

Well, here’s a story from the New York Times that is sympathetic to the idea of broad-based salary disclosure.  It refers to websites, like Glassdoor.com, that post salary information by company having employees post the information anonymously.  Can anyone make an argument against making wages and salary public information?

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One Response to Should Salaries & Wages Be Publicly Disclosed?

  1. David Reply

    September 24, 2008 at 1:21 pm

    First, the moronic assmptions are simplifications to gain insights into isolated economic phenomena. Only naive undergrads think that these are an attempt to describe the real world.

    Second, information asymmetry and labour market stickiness are key elements of all sophistocated labour economic models.

    I think the argument against public disclosure of individuals’ compensation is privacy. That said, one could argue that it makes sense to publish summary statistics about compensation. The information that matters, however, is knowing what I could earn at another workplace (or the compensation between two competing job offers) to bargain my best possible outcome. My knowledge about what a co-worker earns only gives me envy.

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