Wage Formation between Newly Hired Workers and Employers: Survey Evidence


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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