No one negotiates worse informed than a 23-year-old discussing a first salary. There is no internal reference point, no history of raises, no colleague network inside the firm, and the counterpart across the table prices offers for a living. What looks like a nerve problem is actually an information problem, and the research on pay perception says the information gap is bigger than most people assume.
In a field experiment with 2,060 employees of a large commercial bank, Cullen and Perez-Truglia (2022) found that employees underestimated their manager's salary by 14.1 percent on average, with a mean absolute error of 28 percent; even for immediate peers, the average error was 11.5 percent. These are people inside the company, with years of exposure. A candidate outside it knows less still. The first implication for a young negotiator is humility about their own anchor: the number in their head is probably wrong, and the direction of the error is not random, because employers supply most of the signals.
Not all comparisons help you
The same experiment produced the field's most useful asymmetry. When employees learned their manager earned more than they had thought, they worked more: a 10 percent increase in perceived manager pay raised hours worked over the following 90 days by 1.5 percent, an effect the authors trace to career concerns, the sense that the ladder pays. When employees learned their peers earned more, the effect reversed and was far larger: a 10 percent increase in perceived peer pay reduced hours worked by 9.4 percent. Looking up motivates; looking sideways corrodes.
The sideways effect is robust elsewhere. When researchers pointed University of California employees to a public salary database, those paid below the median of their unit reported lower job satisfaction and higher intent to look elsewhere, while those above the median gained no symmetric boost (Card, Mas, Moretti and Saez, 2012). And a field experiment with Indian manufacturing workers found that pay differences colleagues could not justify by visible productivity cut output and attendance sharply, while the same differences caused no damage once the higher-paid colleague's productivity was observable (Breza, Kaur and Shamdasani, 2018). The variable that decides whether pay differences demoralize is not their size but their justifiability.
This gives the young negotiator a sharper question than "am I paid fairly?" The question is: can this company explain its pay? A firm that can show the logic, criteria, ranges, and the path upward, is one where comparisons will inform rather than poison.
Transparency is a design, not a virtue
It is tempting to treat pay transparency as simply good, and to prefer employers that post everything. The evidence is more specific. Reviewing the field's experiments and policy episodes, Cullen (2024) distinguishes three transparencies with opposite effects: horizontal (peers), vertical (up the ladder), and cross-firm. Vertical transparency tends to motivate; horizontal transparency backfires when it reveals disadvantage; and cross-firm transparency laws have tended to compress and lower salaries by weakening individual bargaining. A related natural experiment in California found that forced disclosure of municipal managers' pay compressed compensation and pushed quit rates up (Mas, 2017). Transparency helps the young worker most as an input to their own decision, and as a test of the employer's coherence, not as an ideology.
Hence the questions that actually work in an offer conversation, none of which name a number first: How is pay for this role determined, and is there a published range? What separates the bottom of the band from the top? When and how is pay revisited, and who decides? What did the typical person in this role earn after two years? Each is answerable by any employer with a real system, and each failure to answer is data.
The oldest benchmark is the books
As Ricardo Semler has told it, Semco paid a fixed share of each unit's profit, 23 percent, to the people who produced it, with the books open so anyone could check the math. His suggested interview test still cuts deeper than any salary survey: ask what percentage of last year's profit went to non-executives. A company that knows the answer, and will say it, has a pay system. A company that finds the question rude has something else, and a 23-year-old is better off learning that before signing rather than after.
Sources
- Cullen, Z. & Perez-Truglia, R. (2022). How Much Does Your Boss Make? The Effects of Salary Comparisons. Journal of Political Economy 130. Field experiment, 2,060 bank employees: manager pay underestimated by 14.1% (mean absolute error 28%); higher perceived manager pay raises effort, higher perceived peer pay lowers it (10% -> -9.4% hours). https://doi.org/10.1086/717891
- Cullen, Z. (2024). Is Pay Transparency Good? Journal of Economic Perspectives 38(1). Distinguishes horizontal, vertical, and cross-firm transparency with opposite effects; cross-firm transparency laws tend to compress and reduce pay. https://doi.org/10.1257/jep.38.1.153
- Card, D., Mas, A., Moretti, E. & Saez, E. (2012). Inequality at Work: The Effect of Peer Salaries on Job Satisfaction. American Economic Review 102. Below-median earners exposed to peer salary data reported lower satisfaction and higher search intent; no symmetric gain above the median. https://doi.org/10.1257/aer.102.6.2981
- Breza, E., Kaur, S. & Shamdasani, Y. (2018). The Morale Effects of Pay Inequality. Quarterly Journal of Economics 133. Pay inequality reduced output and attendance only when productivity differences were not observable; justifiability, not inequality itself, drives the damage. https://academic.oup.com/qje/article-abstract/133/2/611/4430649
- Mas, A. (2017). Does Transparency Lead to Pay Compression? Journal of Political Economy 125. California disclosure law compressed municipal managers' pay and increased quits; forced transparency carries trade-offs. https://doi.org/10.1086/693137