"The Payoffs of Higher Pay: Elasticities of Productivity and Labor Supply with Respect to Wages" - Natalia Emanuel, Princeton University/NY Federal Reserve Bank

Apr 11, 1:20 pm2:35 pm
Julis Romo Rabinowitz Building, Rm 217 and via Zoom
Event Description

Natalia Emanuel is a Postdoctoral Research Associate in the Section, and will join the NY Federal Reserve Bank in 2022.

Natalia Emanuel will be presenting in-person and via Zoom.


What do firms gain from raising pay for low-wage workers? Focusing on a Fortune 500 retailer, we estimate the impact of higher wages on employee productivity, turnover, and recruitment among warehouse and call-center workers, using the quasi-randomness induced by sticky wage-setting policies. We document finite wage elasticities of turnover (between −3.0 and −4.5) and recruitment (between 3.2 and 4.2), which suggest the firm has some wage-setting power. Yet, on the margin, raising wages by $1 increases productivity by more than $1, giving the firm an incentive to pay more, even if they could pay lower wages. These responses to pay emerge both in a setting where the firm discretely raised wages and in a setting where its wages remained constant while other firms raised pay. These effects reflect both changes in worker selection and changes in behavior of existing workers. We estimate that over half of the turnover reductions and productivity increases arise from changes in workers’ behavior. Finally, our estimates suggest considerable gender heterogeneity: Men’s turnover is more responsive to higher wages than women’s. But turnover effects are swamped by women’s stronger productivity response to higher pay. Together, the gender-specific elasticities suggest firms have an implicit incentive to set female wages above male wages and thus firm profits cannot explain the gender pay gap.