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Wage Formation between Newly Hired Workers and Employers: Survey Evidence

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  • Robert E. Hall
  • Alan B. Krueger

Abstract

Some workers bargain with prospective employers before accepting a job. Others could bargain, but find it undesirable, because their right to bargain has induced a sufficiently favorable offer, which they accept. Yet others perceive that they cannot bargain over pay; they regard the 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. The fraction of workers hired away from existing jobs is another key determinant of equilibrium, because a worker with an existing job has a better outside option in bargaining than does an unemployed worker. Our survey measures the incidences of wage posting, bargaining, and on-the-job search. We find that about a third of workers had precise information about pay when they first met with their employers, a sign of wage posting. We find that another third bargained over pay before accepting their current jobs. And about 40 percent of workers could have remained on their earlier jobs at the time they accepted their current jobs.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14329.

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Date of creation: Sep 2008
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Handle: RePEc:nbr:nberwo:14329

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  1. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(1), pages 113-26, February.
  2. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 2(2), pages 233-57, April.
  3. Fabien Postel-Vinay & Giuseppe Moscarini, 2008. "The Timing of Labor Market Expansions: New Facts and a New Hypothesis," 2008 Meeting Papers 326, Society for Economic Dynamics.
  4. Guido Menzio, 2007. "A Theory of Partially Directed Search," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115(5), pages 748-769, October.
  5. Dale T. Mortensen, 1978. "Specific Capital and Labor Turnover," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(2), pages 572-586, Autumn.
  6. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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