I can’t believe he makes that much!
TEXT OF INTERVIEW
Tess Vigeland: Regular listeners know that we are big proponents of financial transparency, both on Wall Street and around the kitchen table. You’ve got to talk about money with your spouse, with your kids. But one place we’re still not so sure about is the office. Ask yourself, do you really want to know what your coworkers make?
Here’s a sampling of answers from the streets of Los Angeles and New York.
Man 1: I wouldn’t want to know. Probably cause some resentment towards my fellow employees.
Woman 1: No, I don’t. I just think that when you come into a company, you negotiate your salary and you were happy to take it, so you should be happy, regardless of what others around you are making.
Man 2: If they were there longer than me, if I was there longer than them, yeah, I would like to know what they were making.
Man 3: I don’t get paid a lot, so I don’t really care.
A group of Berkeley economists took up this topic recently. David Card is one of them. And I asked him how the study (PDF) worked.
David Card: A couple years ago, the Sacramento Bee put onto a website a search engine, which allowed you to look up the salaries of anybody who works for the state government in California, including everybody at the University of California.
We decided to try and figure out whether finding out about that would change your value of how much you liked your job. So what we did was we took three campuses of the UC, and for the group that we were treating, we sent them an e-mail and said, “Are you aware of this website where you can look up the salaries?” And then five, six, seven days later, we sent a second survey and said we’d like to ask you some questions about how happy are you with your salary, how happy are you with the job. And on average, there wasn’t too much difference. But when we focused closely on the group who were earning less than the median for the comparable workers in their pay unit, they definitely showed a pattern of feeling a little bit worse about their job and saying they’re more likely to look for another job in the future.
Vigeland: Well, that sounds kind of like common sense, that if you find out you’re making less than the median of your colleagues, you’re not going to be real happy about it, right?
Card: Yeah, although, one of the big reasons people earn less than the median for their pay unit is that they’re less experienced or they’re less qualified or they’ve been there less. So this isn’t just that it’s exactly comparable workers all doing the same job.
Vigeland: Well, how do you think people would react if this kind of information was more readily available? Would that be a net positive or negative based on your findings?
Card: Well, taken literally, what our findings suggests is if you have an environment where no one knows anything or very few people know, and then you suddenly make that information available, it doesn’t do much for the higher earnings people. It does seem to be somewhat of a negative for the lower earning people, particularly the lowest. And presumably, over time, bosses and employers, more generally, will have to justify their pay structure and people will really have a better sense that whatever salary they got is pretty much out there in the open. It’s like a athlete’s salary; everybody talks about it, they know what it is. They might say it’s too low, they might say it’s too low. But at some point, everybody has a chance to assess where their situation is, and they don’t feel like the reason why I’m not getting paid less is just because I don’t have any bargaining power, or just because this particular employer feels that they can take advantage of my situation right now.
Vigeland: So, do you think it’s in management’s best interest, perhaps, on two fronts to keep this information under wraps? One, it could force some changes in what they’re paying people, perhaps truing folks up. But also I wonder if they’d have a less happy work force if people did know what their colleagues were making.
Card: Yeah. I think that’s definitely what we see in our analysis. You’re going to have some dissatisfaction and we hope to follow up our research in a couple of years and see whether the people that said that they’re going to go out and look for another job in fact either do that or manage to get an increase. Unfortunately for those of us who work at the university, last couple of years have been a very tough economic environment, and so there haven’t been any…
Vigeland: Good luck with that, right?
Card: Yeah, exactly. When we started the project, it was actually just at the very peak of the cycle. We though this was going to be really interesting, we can go a couple years from now and see where people are. Who got a raise, who didn’t.
Vigeland: Right.
Card: That didn’t turn out.
Vigeland: Something like the Great Recession happened, right?
Card: Yes, exactly.
Vigeland: Well, I have to ask, you obviously work at the University of California. So did you go looking at your colleagues’ pay? If so, how did that make you feel?
Card: I have looked it up. We figured we should do that just to sort of see how the website works and also…
Vigeland: How you reacted?
Card: Well, to tell you the truth, I’m a labor economist. I worked on salary data for a long long time. I don’t think they were that big of surprises, but we have had the reaction from people who were sent the survey, and in many cases people were rather surprised, both up and down. They said, “Well, I didn’t realize what XYZ were paid” or “I didn’t realize quite where I stood relative to those people.” So I think there is a lot of lack of information.
Vigeland: And I guess when you’re thinking about the people who are at the top end that the piece of bad news for them might be that they don’t really have anywhere to reach for? That they don’t have anywhere to go?
Card: Yeah, that was our alternative hypothesis to tell you the truth. We thought, if you look on the website and you see, “Well, this guy’s been here for four, five years longer than me and his salary is $10,000 more than mine.” People who find themselves a little below the median would be cheered up, good news, there’s room to grow. On the other hand, I’ve been here a long time and now I look at the other people who’ve been here a long time, and I see, “Well, in fact, I’m doing really well. It doesn’t look like I’ve got anywhere to go but down. Oh my gosh, I’m stuck.” We find absolutely no evidence of that.
Vigeland: I’m sorry. I just have no sympathy for that whatsoever. I’d really love to be at the top!
Card: Yeah. I have a feeling that is the reaction from many, many people.
Vigeland: David Card is an economics professor at Berkeley, and we’ve been talking about his study “Inequality at Work: The Effect of Peer Salaries on Job Satisfaction.” Thanks very much.
Card: It’s been a pleasure.
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