How can Blockchain reduce pay inequality?

Liberalize: Remove or loosen restrictions on (something, typically an economic or political system)[1]

Considering International Women’s Day as well as my own recent research regarding blockchain and decentralized ledgers, I thought it would be an interesting analysis to highlight a potential connection between these two subjects.

So, in an attempt to accomplish this possible use-case, I will first describe the basic principles that make up blockchain technology. I will then move to a major issue that is being addressed by women’s groups as well as by other disenfranchised people, specifically pay inequality (I’m not qualified to write from a place of experience on this, since I am a white male. However, I do believe in and support the changes that are being advocated for by these groups. And from this, will hopefully clearly articulate the major sought-after request of equal pay that these groups are working to bring). After laying out the basic facts, I hope to bridge how incorporating blockchain technology into women’s pay parity advocacy will lead to the results that business and governmental entities speak about.

I’m hoping that this analysis will provide a use-case in which blockchain technology could have a major benefit when incorporated into the business and governmental areas; that this new technology can truly accelerate the equality women seek regarding pay.

What is blockchain?

(The following section is regarding Public Blockchains. I’m using the term ‘blockchain’ but much of this can be applied to the term ‘decentralized ledger.’ I will continue to use the term ‘blockchain’ because it’s the most popular decentralized ledger and applies to the environment I envision for this possible use case [I will assume that transactions will be recorded in visible ‘blocks’]. A quick synopsis on the difference between ‘blockchain’ and ‘decentralized ledger technology’ is here.)

Blockchain is simply a hodge-podge of technology and cryptography that has been assembled to create a database that is secure and owner less. It’s a network — it requires individual actors to be on the platform and transact. A peer-to-peer network in which each participant in the network contributes as both a publisher and subscriber. It’s decentralized — no one individual has more authority over the network than any other individual. It’s a database — the network of individual actors allows for transactions/interactions to take place that are immutably (Not changeable) stored. Finally, the individual actors in the blockchain are kept pseudonymous. In other words, each individual actors’ transactions can be seen by all individuals but knowing who a specific individual is, is encrypted.

Now there are varying types of blockchains, with different aspects to them. But for the most part, the above definition defines a majority of blockchains.

The benefit of blockchains is that they provide unalterable truth in environments with no authoritative figure. They ensure trust and security, while also providing visibility, for all participants, into the network. This foundational aspect of blockchain is why I believe (Hopefully not naively) that the technology is a prime tool for bringing women’s pay on equal ground with that of men.

Women’s pay gap

The United States was ranked number 49 from a list of 144 countries in terms of the gender gap, or percentage of pay that women earn compared to men, conducted by the World Economic Forum (WEF) in 2017 (Behind such countries as Lithuania and Belarus). It is estimated by the WEF, with current rates of progress, that it will take 168 years until women are paid equally to that of men in North America.[2] For all 144 countries in the study, it is expected to take 217 years before parity is reached. What is most surprising from these numbers is that they have all increased since research conducted in 2016.

From the Bureau of Labor Statistics, women in the United States earn on average 83% of men’s median weekly earnings.[3] Here is breakout of women’s pay to that of men across industries:

Bureau of Labor Statistics

There appears to be a disconnect between the attention companies/governments have given towards bringing women’s pay to the level of men and the actual actions taken to reconcile those differences.

Enter blockchain (Company sponsored decentralized ledger)

Blockchain technology can transform the way that companies/institutions address pay for their employees. If employees could be individuals on a company sponsored HR blockchain then they would be pseudonymous participants seeing the organization from a secure and honest viewpoint. This corporate, private blockchain would display everyone’s base salary compensation given their work-effort performed (The transactions would be: compensation for job function. All recorded immutably on the ledger). In such an environment, there could be no difference in pay for equal job performance. And if there was, then it would be visible. And with visibility, then actions could be taken to address the pay and promotional differences impacting women.

Depending on the parameters of the decentralized ledger, the public key (Or alias given to each person, to give anonymity) could have a few grouping markers that designate certain information. Such as; a marker indicating either “Male” or “Female”, a marker indicating seniority, or a marker indicating business function. This would allow for a more transparent view for employees while keeping specific individuals pay from being displayed (These parameters of course could change depending on their ability to signal out individuals. But the idea is to allow for as much transparency into the firm’s pay structure so historically discriminated individuals aren’t working in an opaque work environment). As mentioned in a McKinsey Quarterly article, identifying the barriers and explicitly addressing them is what is needed to bring the change towards pay differences and promotional issues facing women. Decentralization of income information, that is real time and pseudonymous, has the potential to accelerate these changes while also limiting the biases that continue to present themselves.

Now, specifics of the blockchain like; how to implement work effort per salary into code, or how on boarding would occur (Seeing a new individual in a group and a new individual on the blockchain, one would be able to know who that person most likely is) would need to be addressed. Also, whether the blockchain will be private, with a read-only access for outsiders, or public for interested parties to make employment requests, would also have to be analyzed (I advocate for public blockchains later in this article). But the integrity fostered by a company that installs a pay-per-work-effort blockchain would bring the much-needed visibility into pay decisions that businesses should be required to have. Blockchain allows a company to provide ever present and real time truthfulness into an organization while it removes the lip-service that may anger tired ears.

Of course, there are obstacles. Like, what company would want to install something that businesses have always contained (How they pay employees)? Who, as an employee, would want their pay displayed, even if pseudonymous-ly? Basically, who would implement it and who would want to work there?

Maybe not the large multinational organizations at first, since I see hurdles surrounding the checks and balances in decision making that these firms are required to address. But smaller companies (100 to 10,000 employees), and budding companies that truly care about ensuring equality of their employees and visibility into management/hiring decision making, could have a strong inclination for this technology. If implemented correctly, these companies could be at the forefront of equal pay advocacy. Ambiguity surrounding job functions and income could be eliminated, ultimately giving more responsibility and control to the organization’s workforce.

Individuals who take pay equality seriously and want clarity into what work effort will lead to what income levels, will be strong candidates for employers who have this HR technology. These employees will respect the visibility given towards their performance. These employees will know the job performance criteria that the firm truly believes in and if they disagree with the employer, at least the employees will be on level footing. This visibility and immutability ultimately liberalizes individuals to focus on work effort and not on comparison/competition towards their colleagues.

At this point you are probably wondering, “Why won’t companies that want to ensure equality, install their own centralized ledger? Providing the visibility that their employees want, while the company maintains the control over the database.” Why blockchain?

I see two reasons why blockchain (A public blockchain) technology would be used over centralized technology.

Reason one: Companies not only signal their own employees; but also signal future employees

The open platform would entice prospective employees to research the company’s work effort and pay ratio; while not specifically knowing who is getting paid what. It is an indication that the employer is serious about limiting pay discrimination. Current and future employees would explicitly know, in real time, the company’s valuing criteria regarding job function. This clarity would be a huge distinguish-er in comparison to other companies hidden work-to-take home pay structures.

Reason two: It can be used by economies/governments

Now, stay with me, because I see that this pay equality blockchain having network effects that benefit not only individual companies but also entire economies. The statistics presented by the Bureau of Labor Statistics (BLS) were collected via survey data. This information is given by companies when BLS statisticians ask them to provide information about employee wages and benefits.[4] Though some companies may currently have this information provided to the BLS already automated, overall the process appears to be antiquated and subject to interpretation.

The BLS information is what much of the pay-equality information relies on. It is also what much of the economy’s health is judged on. Instead of relying on word-of-mouth data that is provided by organizations, a distributed blockchain across multiple organizations would provide real-time and accurate data. As discussed in the book Everybody Lies, truthful data is best delivered from truthful inputs (Such as an open distributed ledger providing a real-time feed) and not from surveys or through word of mouth. This technology would bring accurate information regarding employment/salary statistics and allow for all citizens to have a gauge on serious pay-equality organizations. More strategic approaches to pay-inequality could be implemented with this information.

It’s a utopian use-case. But I have faith in, “if you can code it, then you can do it.”

Why implement this now?

From a 2017 Gartner Research report, blockchain technology has recently passed the ‘Peak of Inflated Expectations’ and is transitioning into the ‘Trough of Disillusionment’.[5]

2017 Gartner Research report on the ‘Hype Cycle’ for current technology

This means that blockchain technology is expected to have 5 to 10 years before major inroads are made implementing the technology into companies and the economy. Blockchain technology is considered trans-formative disruption. In other words, it’s considered to be so disruptive that it will fundamentally transform commercial and societal norms that it must change these processes from the foundational level. Some believe that the technology cannot just be implemented in one area/process and over time allowed to grow in other areas.

However, this potential use-case for pay equality could reduce the expected time for blockchain technology to make an impact. Companies could implement the technology as an add-on feature to their current HR processes without disrupting the organization. Over time the technology could be used for other processes within HR and the firm, leading to increased transparency in the firm’s operations.

Instituting blockchain technology to combat the women’s pay gap has the potential to be an easy implementation, not requiring large structural changes to organizations, and could lead to major improvements regarding pay equality for women.

[1] Oxford University Press

[2] “The Global Gender Gap Report 2017.” World Economic Forum, www.weforum.org/reports/the-global-gender-gap-report-2017.

[3] “Women’s earnings 83 percent of men’s, but vary by occupation : The Economics Daily.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, www.bls.gov/opub/ted/2016/womens-earnings-83-percent-of-mens-but-vary-by-occupation.htm.

[4] “Wage Data.” U.S. Bureau of Labor Statistics, U.S. Bureau of Labor Statistics, 30 June 2011, www.bls.gov/respondents/ncs/collect.htm.

[5] Panetta, Contributor: Kasey. “Top Trends in the Gartner Hype Cycle for Emerging Technologies, 2017.” Smarter With Gartner, 12 Oct. 2017, www.gartner.com/smarterwithgartner/top-trends-in-the-gartner-hype-cycle-for-emerging-technologies-2017/.