The pay gap between males and females has been a controversial subject for many years. Several states (Oregon Equal Pay Act of 2017), cities, and counties have passed legislation designed to bridge the gap. To set new salaries, many companies ask candidates for their salary history from previous positions. New legislation looks to bar companies from asking that question to avoid salary disparity.

Few think this will close the gender pay gap. The idea is employers will be prevented from setting salaries based on previous pay. This way, females that have been previously impacted by discriminatory salaries are not paid unfairly for the remainder of their careers.

Harvard Business Review Study

Unfortunately, these new measures may not change much in the big picture. According to a study conducted by Harvard Business Review, employers offer women who do not disclose their previous salary 1.8% less on average. Employers offer males who don’t report their salary a 1.2% increase. These results illustrate that new legislation is actually counter-intuitive to its intended purpose.

One reason this occurs could be that a woman who does not disclose her salary history may induce the assumption that she makes less, resulting in a lower offer. On the other hand, the employer may react negatively to non-disclosure agreements, so passing legislation that prevents asking about previous salary history could benefit the applicant.

Impact on Businesses Small and Large

Many large companies feel they already have significant policies in place to avoid salary differences. Small businesses are more likely to see the impact. Usually, these businesses rely less on policy and negotiate more frequently, creating space for these changes to be noticeable.

Additionally, small businesses may struggle to attract top talent if they can’t offer competitive salaries. Potentially hindering growth and competitiveness in the market. Therefore, it is crucial to consider the potential negative impact on small businesses before implementing drastic pay gap legislation.