For people paid below the median for their department and occupation ... information [on pay of peers] has a negative effect...on job satisfaction.
After a court decision on California's "right to know" law, the Sacramento Bee newspaper established a website in early 2008 that made it possible to search for the salary of any state employee, including both faculty and staff at the University of California (UC). To determine how the availability of such salary information may affect workers' job satisfaction, researchers David Card, Alexandre Mas, Enrico Moretti, and Emmanuel Saez contacted a random subset of employees at three UC campuses, informing them of the existence of this website. A few days later, they surveyed all campus employees about their use of this website, their pay and job satisfaction, and their job search intentions.
In Inequality at Work: the Effect of Peer Salaries on Job Satisfaction (NBER Working Paper No. 16396), the authors report that informing people about a web site that contains individual salary information for their co-workers and colleagues doubles the likelihood of using the site. Most of the new users are interested primarily in the salaries of co-workers in their own department.
For people paid below the median for their department and occupation, the new information has a negative effect, with the greatest impact on the lowest-paid workers. Higher-wage individuals, however, are not negatively affected. Once an individual's salary exceeds the median for his or her department and occupation, the effect of others' higher wages falls to zero. These findings suggest that employers have a strong incentive to impose pay secrecy rules, and they raise questions about how greater access to information on compensation patterns in the workplace may affect pay scales.
-- Lester Picker