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You don't really need to make up a theoretical model for this. Just analyze Norway or Sweden where pay transparancy exists to discover how it impacts pay. I rem

You don't really need to make up a theoretical model for this. Just analyze Norway or Sweden where pay transparancy exists to discover how it impacts pay. I remember reading that it reduces overall pay as the model here predicts, but I don't remember the source.

occz 5y ago
Pay transparency exists in Sweden? You mean like taxable income being part of public records?
- cinntaile 5y ago
  Yes. That should be pretty accurate since most people only work at one job and don't switch each year.
- karatinversion 5y ago
  I’m not familiar with Sweden, but this is how it works in Finland. The data are not published online, but can be queried by phone or in person from the tax office. National newspapers publish lists of the top earners each year when the data are published; here is one example (in Finnish), including everyone with income over €100,000: https://www.iltalehti.fi/verokone https://www.iltalehti.fi/verokone
- mellavora 5y ago
  Yes, taxable income is part of public records in Sweden.
pydry 5y ago
A non theoretical model's results wouldnt be able to eliminate confounding variables in Finland/Norway. Did pay go down because of pay transparency or because of 17 other variables that were changing at the same time? No way to tell. A theoretical model is likely trash - you can pretty much reverse the outcome by tweaking a couple of assumptions. The only way I can think of that might work would be to measure the effect on pay for similar jobs across a state border - where one side implemented pay transparency and the other didn't (similar to how the Dube, Lester, Reich study was constructed).
busterarm 5y ago
This could also have to do with Scandinavian social tendencies, where doing excessively better than your peers financially is seen as being in poor taste. The pay transparency leading to wage equilibrium is just enforcement of the societal expectation. There is also very low class mobility there compared to, say, the US.
- Kranar 5y ago
  The idea that Scandinavian countries have lower class mobility than the U.S. goes against almost every study and observation on the issue. Here is the World Economic Forum's findings [1], which places Scandinavian countries at the top across a host of factors including income, education, and health. I'd also be careful about placing much emphasis on things like culture, not because countries are homogeneous culturally, but because often when people talk about how culture in Europe is so drastically different than culture in the U.S., they are referring to stereotypes that are mostly at the margins and don't often have much of an impact on socioeconomic factors. As humans, we have a tendency to focus on superficial differences and exaggerate those differences to explain away phenomenon. I highly doubt you'd find a credible study indicating that Scandinavians will forgo attaining a higher income and a better quality of life just so they can fit into a mold and satisfy some kind of cultural tendency, but if you do have any such studies for review I'd be very happy to see them. [1] http://www3.weforum.org/docs/Global_Social_Mobility_Report.pdf http://www3.weforum.org/docs/Global_Social_Mobility_Report.p...
  - busterarm 5y ago
    This report is almost entirely studying the ability of people to move up from poor to middle class. That's one kind of mobility sure and those countries focus social programs heavily on evening out everyone's income. That's exactly what I was saying. What I'm talking about wrt low mobility is how often people in those countries go from poor or average to wealthy or from wealthy to average or to poor. Generally wealthy people stay wealthy there and average income people stay average income. That study's data supports this -- it's very easy to obtain a mean income if you had less; after that movement is very low. This should be obvious but if you have very low income inequality then there's very little potential to be either rich or poor. This isn't even a criticism! It's great that people can generally earn a living there. I'm just stating what everyone seems to know there -- that it's very hard to become wealthy and generally looked down upon as a goal. Scandinavians don't like to boast. Startup costs for new businesses are high and you can't just go buying up tons of real estate to rent out to people because land ownership is heavily regulated. I can't even buy an apartment as a non-resident foreigner (in Denmark) without a very difficult to obtain government approval. Danish monetary policy is having its banks charge customers penalty rates for having a meager cash savings. In the US we have much greater swings in fortune, good and bad. Heck, I've been both a millionaire and homeless within my lifetime. That kind of outcome is absurdly unlikely in Scandinavian countries.
theptip 5y ago
The reason this doesn’t work as well as you’d hope is that there are confounders that make it difficult to apply Norway’s experiences to the US. The design of using a “natural experiment” where a localized change lets you measure before/after at a discontinuity is a good way of solving this. That’s what this paper looked at to test their model.

occz 5y ago

Pay transparency exists in Sweden? You mean like taxable income being part of public records?

cinntaile 5y ago
Yes. That should be pretty accurate since most people only work at one job and don't switch each year.
karatinversion 5y ago
I’m not familiar with Sweden, but this is how it works in Finland. The data are not published online, but can be queried by phone or in person from the tax office. National newspapers publish lists of the top earners each year when the data are published; here is one example (in Finnish), including everyone with income over €100,000: https://www.iltalehti.fi/verokone https://www.iltalehti.fi/verokone
mellavora 5y ago
Yes, taxable income is part of public records in Sweden.

pydry 5y ago

A non theoretical model's results wouldnt be able to eliminate confounding variables in Finland/Norway. Did pay go down because of pay transparency or because of 17 other variables that were changing at the same time? No way to tell. A theoretical model is likely trash - you can pretty much reverse the outcome by tweaking a couple of assumptions. The only way I can think of that might work would be to measure the effect on pay for similar jobs across a state border - where one side implemented pay transparency and the other didn't (similar to how the Dube, Lester, Reich study was constructed).

busterarm 5y ago

This could also have to do with Scandinavian social tendencies, where doing excessively better than your peers financially is seen as being in poor taste. The pay transparency leading to wage equilibrium is just enforcement of the societal expectation. There is also very low class mobility there compared to, say, the US.

Kranar 5y ago
The idea that Scandinavian countries have lower class mobility than the U.S. goes against almost every study and observation on the issue. Here is the World Economic Forum's findings [1], which places Scandinavian countries at the top across a host of factors including income, education, and health. I'd also be careful about placing much emphasis on things like culture, not because countries are homogeneous culturally, but because often when people talk about how culture in Europe is so drastically different than culture in the U.S., they are referring to stereotypes that are mostly at the margins and don't often have much of an impact on socioeconomic factors. As humans, we have a tendency to focus on superficial differences and exaggerate those differences to explain away phenomenon. I highly doubt you'd find a credible study indicating that Scandinavians will forgo attaining a higher income and a better quality of life just so they can fit into a mold and satisfy some kind of cultural tendency, but if you do have any such studies for review I'd be very happy to see them. [1] http://www3.weforum.org/docs/Global_Social_Mobility_Report.pdf http://www3.weforum.org/docs/Global_Social_Mobility_Report.p...
- busterarm 5y ago
  This report is almost entirely studying the ability of people to move up from poor to middle class. That's one kind of mobility sure and those countries focus social programs heavily on evening out everyone's income. That's exactly what I was saying. What I'm talking about wrt low mobility is how often people in those countries go from poor or average to wealthy or from wealthy to average or to poor. Generally wealthy people stay wealthy there and average income people stay average income. That study's data supports this -- it's very easy to obtain a mean income if you had less; after that movement is very low. This should be obvious but if you have very low income inequality then there's very little potential to be either rich or poor. This isn't even a criticism! It's great that people can generally earn a living there. I'm just stating what everyone seems to know there -- that it's very hard to become wealthy and generally looked down upon as a goal. Scandinavians don't like to boast. Startup costs for new businesses are high and you can't just go buying up tons of real estate to rent out to people because land ownership is heavily regulated. I can't even buy an apartment as a non-resident foreigner (in Denmark) without a very difficult to obtain government approval. Danish monetary policy is having its banks charge customers penalty rates for having a meager cash savings. In the US we have much greater swings in fortune, good and bad. Heck, I've been both a millionaire and homeless within my lifetime. That kind of outcome is absurdly unlikely in Scandinavian countries.

theptip 5y ago

The reason this doesn’t work as well as you’d hope is that there are confounders that make it difficult to apply Norway’s experiences to the US. The design of using a “natural experiment” where a localized change lets you measure before/after at a discontinuity is a good way of solving this. That’s what this paper looked at to test their model.