Working Paper: NBER ID: w16033
Authors: Robert E. Hall; Alan B. Krueger
Abstract: Some workers bargain with prospective employers before accepting a job. Others face a posted wage as a take-it-or-leave-it opportunity. Theories of wage formation point to substantial differences in labor-market equilibrium between bargained and posted wages. We surveyed a representative sample of U.S. workers to inquire about the wage determination process at the time they were hired into their current or most recent jobs. A third of the respondents reported bargaining over pay before accepting their current jobs. About a third of workers had precise information about pay when they first met with their employers, a sign of wage posting. About 40 percent of workers could have remained on their earlier jobs at the time they accepted their current jobs, indicating a more favorable bargaining position than is held by unemployed job-seekers. Our analysis of the distribution of wages shows that wage dispersion is higher among workers who bargained for their wages. Wages are higher among bargainers than non-bargainers, after adjusting for the differing compositions of the groups. Our results on wages give substantial support to the job-ladder model--workers who had the option to remain at their earlier jobs when they took their current jobs can earn higher wages than those without that option.
Keywords: wage posting; wage bargaining; labor market; wage determination; wage dispersion
JEL Codes: E24; J3; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage posting (J38) | less wage dispersion (J31) |
| wage bargaining (J52) | higher wages (J39) |
| bargaining (C78) | greater wage dispersion (J31) |
| educational attainment (I21) | bargaining incidence (C78) |
| educational attainment (I21) | wage knowledge (J31) |
| option to retain previous employment (J63) | stronger bargaining position (C78) |
| stronger bargaining position (C78) | enhanced wage outcomes (J31) |