Last week, New York City passed a measure to ban employers from asking job applicants about their salary history. The city’s public advocate, Letitia James, proposed the measure as a response to wage inequality, and says the wage gap costs women $5.8 billion a year in New York City alone. In an opinion piece for the New York Daily News, James explained that linking future salaries to past salaries makes it difficult to increase earning potential. “Being underpaid once shouldn’t condemn you to a lifetime of inequality,” James wrote. “The old ways of attacking the problem aren’t working. We’ve got to pursue new approaches — like attacking wage disparities at their subtle but pernicious roots.”
The ban was already implemented in New York for public-sector jobs, but it will now apply to jobs in the private sector, too. It’s a trend that’s expanding, as similar bans have passed in Philadelphia, New Orleans, and Massachusetts. And that’s a big deal for job applicants, the research suggests, because laws like these help counter a common cognitive bias, one that may cost potential employees many thousands of dollars.
“It’s a strategic way for employers to anchor past figures to current salaries,” said Malia Mason, a professor at Columbia Business School. “Your current salary shouldn’t be about what you made before you had your MBA, or in this totally different job where you were underpaid. Salary history is not the relevant reference point. The reference should be what the market pays.”
People rely too much on the first piece of information.
When potential employers use your salary history as a reference point, it can work against you due to a cognitive bias called “anchoring.” With anchoring, people rely too heavily on one piece of information to come to a conclusion or a decision. For example, one of the first studies on anchoring, published in 1974, asked subjects to estimate how many African countries were members of the United Nations. Before answering, subjects spun a wheel with numbers on it. Behind the scenes, the study’s researchers controlled where the wheel landed so that it would either hit the number ten or the number 65. When the wheel landed on ten, people estimated that 25 percent of African nations were U.N. members. When it landed on 65, the estimate increased to 45 percent.
Without realizing it, the subjects latched onto the arbitrary number before making their guesses. This is the anchoring bias in action, and when a potential employer asks you about salary history, that number similarly serves as an anchor in the negotiation process. If you earned next to nothing in a past job, a low anchor could limit your chance to earn more in the new job. Plus, raises, bonuses, and pay increases are often based on a percentage of an employee’s salary, too.
“There’s been another recent trend whereby potential employees are asked to report on salary expectations before even offered a job interview,” Mason said. “And that totally gives the employer an advantage, too, because employees are nervous about asking for an ambitious figure. They’re afraid the employer will say it’s ridiculous.”
But there are ways to use this bias in your favor.
This is for anyone who doesn’t live in New York City, or those few other places where employers are prohibited from asking about your salary history: Research suggests that the bias is just as effective on the high end as it is on the low end. A 2008 study from the University of Idaho, for example, found that presenting a ridiculously high anchor, even as a joke, resulted in better compensation for new employees. In mock interviews conducted in the study, subjects who simply joked about an unrealistically high salary expectation — like $100,000, when their last salary was under $30,000 — were offered more money on average, even though potential employers knew they weren’t serious. Subjects who mentioned the higher anchor were offered an average of salary of $35,385, compared to $32,463 for subjects in the control group.
“It’s kind of a concern, because there’s a power dynamic there and the applicant usually doesn’t have as much power,” said Todd J. Thorsteinson, the University of Idaho professor and researcher who led the study. “Joking allows you to throw the number out there.”
In the study, Thorsteinson said, subjects told interviewers something like, I’d love a salary of $100,000, but I’m really just looking for something fair. It’s a tricky method to actually implement, though, because while the question of salary is sort of the elephant in the room, addressing it too soon or joking about it in the wrong way can give your potential employer the wrong impression. If you can’t pull it off as charismatic and instead come across as awkward, you might not have an offer on your hands at all. “You don’t want to start off by antagonizing and requesting more than employer can afford, because that’s very difficult to approach,” Thorsteinson said.
And it’s certainly possible to suggest a number that’s too over-the-top. Mason says you can ask for an ambitious amount, but you should be able to back it up with relevant information, like your experience, skill level, or the going rate for the job. “And you should never lie, period,” she added. In areas where asking about salary history is still allowed, your potential employer could look up your information to verify your past salary. If you lie, there’s a good chance they’ll rescind the offer.”
You can also make anchoring work for you by using a range. Conventional wisdom has always been that the other party will anchor onto the lower end of the threshold; if you suggest a range between $30,000 and $45,000, for example, it’s assumed that the employer will ignore the $45,000 and use the $30,000 as a reference point, then adjust the offer from there. “But it turns out that’s not right,” Mason said. “The person doesn’t just disregard the other end. Their understanding is shaped by both ends of the range, not just the end that’s appealing.”
Mason and her colleague, Daniel Ames, co-authored a study on “tandem anchoring”: Instead of offering a single point of reference for salary, Mason and Ames looked at the effect of using a range in negotiations. They found that both the lower and higher points of the range shaped offers. For example, if an applicant offers a range of $30,000 to $45,000, the employer is more likely to stay above $30,000 than if the applicant were to just use $30,000 as a single point of reference. “When you use a range, people feel a little bad,” Mason said. “They have these hidden politeness concerns. They think that responding on the low end is jerkier.”
While the salary-history ban in New York aims to level the playing field for women employees who may have lower anchors due to wage inequality, it may be a beneficial move for all workers. Instead of throwing out an anchor that might not indicate your professional value, you can use anchoring in your favor to optimize your earning potential based on more relevant variables, such as your experience, skills, and even other offers.
In fact, Mason says an alternative offer is a must. When there’s another offer on the table, it serves as a valuable anchor, because it’s realistic and relevant: the numbers are right there. “If you’re looking for a job, you should not be talking to one person, ever,” Mason said. “Always talk to two people, because having a strong alternative to the person you’re talking to is a complete game changer.”