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Evidence on the Determinants of the Choice between Wage Posting and Wage Bargaining

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  • 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16033.

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Date of creation: May 2010
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Publication status: published as “Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search” (with Alan B. Krueger), AEJ: Macroeconomics , October 2012, 4(4) 56–67
Handle: RePEc:nbr:nberwo:16033

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Cited by:
  1. Diamond, Peter A., 2010. "Unemployment, Vacancies, Wages," Nobel Prize in Economics documents 2010-7, Nobel Prize Committee.
  2. Fernández-Blanco, Javier, 2012. "A directed search model of intermediated trade," European Economic Review, Elsevier, vol. 56(8), pages 1481-1494.
  3. Paul Gomme & Damba Lkhagvasuren, 2011. "The Cyclicality of Search Intensity in a Competitive Search Model," Working Papers 11003, Concordia University, Department of Economics.
  4. Tommaso Monacelli & Vincenzo Quadrini & Antonella Trigari, 2011. "Financial Markets and Unemployment," NBER Working Papers 17389, National Bureau of Economic Research, Inc.
  5. Janssen, Simon & Tuor Sartore, Simone N. & Backes-Gellner, Uschi, 2014. "Social Attitudes on Gender Equality and Firms' Discriminatory Pay-Setting," IZA Discussion Papers 7959, Institute for the Study of Labor (IZA).
  6. Zaharieva, Anna, 2013. "Social welfare and wage inequality in search equilibrium with personal contacts," Labour Economics, Elsevier, vol. 23(C), pages 107-121.
  7. Brenzel, Hanna & Gartner, Hermann & Schnabel, Claus, 2013. "Wage posting or wage bargaining? Evidence from the employers' side," IWQW Discussion Paper Series 08/2013, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  8. Ernesto Dal Bó & Frederico Finan & Martín A. Rossi, 2013. "Strengthening State Capabilities: The Role of Financial Incentives in the Call to Public Service," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1169-1218.
  9. Bengtsson, Niklas, 2011. "Regulation Failure and CO2-emissions: An Experimental Investigation of the Cape Town Taxi Market," Working Paper Series, Center for Labor Studies 2011:13, Uppsala University, Department of Economics, revised 12 Aug 2013.
  10. Depew, Briggs & Sørensen, Todd A., 2013. "The elasticity of labor supply to the firm over the business cycle," Labour Economics, Elsevier, vol. 24(C), pages 196-204.

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