Pay Discrimination and Innovation Productivity: Evidence from the Passage of State-Level Pay Secrecy Laws

We examine the role of pay transparency in the productivity of firms’ and inventors’ innovation activities. Our test exploits the staggered adoption of state-level pay secrecy laws, which enhance pay transparency in the workplace. We find a significant increase in innovation by firms located in states that have passed such laws relative to firms elsewhere. This relation is more pronounced for firms in states with lower levels of pre-existing pay transparency. We further show that pay secrecy laws may promote innovation by increasing the productivity of incumbent inventors (especially minority inventors), attracting minority inventors from other states, and enhancing the diversity of inventor teams.