IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_6559.html
   My bibliography  Save this paper

How Do Employers Use Compensation History?: Evidence from a Field Experiment

Author

Listed:
  • Moshe A. Barach
  • John Horton

Abstract

We report the results of a field experiment in which treated employers could not observe the compensation history of their job applicants. Treated employers responded by evaluating more applicants, and evaluating those applicants more intensively. They also responded by changing what kind of workers they evaluated: treated employers evaluated workers with 7% lower past average wages and hired workers with 16% lower past average wages. Conditional upon bargaining, workers hired by treated employers struck better wage bargains for themselves. Using a structural model of bidding and hiring, we find that the selection effects we observe would also occur in equilibrium.

Suggested Citation

  • Moshe A. Barach & John Horton, 2017. "How Do Employers Use Compensation History?: Evidence from a Field Experiment," CESifo Working Paper Series 6559, CESifo.
    • Handle: RePEc:ces:ceswps:_6559
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6559.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mitchell Hoffman & Lisa B Kahn & Danielle Li, 2018. "Discretion in Hiring," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 765-800.
    2. Joseph G. Altonji & Charles R. Pierret, 2001. "Employer Learning and Statistical Discrimination," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 313-350.
    3. Jennifer L. Doleac & Benjamin Hansen, 2016. "Does “Ban the Box” Help or Hurt Low-Skilled Workers? Statistical Discrimination and Employment Outcomes When Criminal Histories are Hidden," NBER Working Papers 22469, National Bureau of Economic Research, Inc.
    4. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    5. Harry J. Holzer, 1987. "Hiring Procedures in the Firm: Their Economic Determinants and Outcomes," NBER Working Papers 2185, National Bureau of Economic Research, Inc.
    6. Brown, Sarah & Taylor, Karl, 2013. "Reservation wages, expected wages and unemployment," Economics Letters, Elsevier, vol. 119(3), pages 276-279.
    7. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    8. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    9. Kyle Herkenhoff, 2016. "The Impact of Consumer Credit Access on Employment, Earnings and Entrepreneurship," 2016 Meeting Papers 781, Society for Economic Dynamics.
    10. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
    11. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    12. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
    13. Duncan S. Gilchrist & Michael Luca & Deepak Malhotra, 2016. "When 3 + 1 > 4: Gift Structure and Reciprocity in the Field," Management Science, INFORMS, vol. 62(9), pages 2639-2650, September.
    14. Martinelli, Cesar, 2006. "Would rational voters acquire costly information?," Journal of Economic Theory, Elsevier, vol. 129(1), pages 225-251, July.
    15. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    16. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    17. Lisa B. Kahn & Fabian Lange, 2014. "Employer Learning, Productivity, and the Earnings Distribution: Evidence from Performance Measures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(4), pages 1575-1613.
    18. Robert Clifford & Daniel Shoag, 2016. "“No more credit score”: employer credit check bans and signal substitution," Working Papers 16-10, Federal Reserve Bank of Boston.
    19. Sherwin Rosen, 1982. "Authority, Control, and the Distribution of Earnings," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 311-323, Autumn.
    20. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-1676, November.
    21. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    22. Cecilia Rouse & Claudia Goldin, 2000. "Orchestrating Impartiality: The Impact of "Blind" Auditions on Female Musicians," American Economic Review, American Economic Association, vol. 90(4), pages 715-741, September.
    23. Alan B. Krueger & Andreas I. Mueller, 2016. "A Contribution to the Empirics of Reservation Wages," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 142-179, February.
    24. Clemens, Jeffrey & Wither, Michael, 2019. "The minimum wage and the Great Recession: Evidence of effects on the employment and income trajectories of low-skilled workers," Journal of Public Economics, Elsevier, vol. 170(C), pages 53-67.
    25. Peter Kuhn & Kailing Shen, 2013. "Gender Discrimination in Job Ads: Evidence from China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(1), pages 287-336.
    26. Amanda Agan & Sonja Starr, 2016. "Ban the Box, Criminal Records, and Statistical Discrimination: A Field Experiment," Natural Field Experiments 00539, The Field Experiments Website.
    27. Marianne Bertrand & Sendhil Mullainathan, 2004. "Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination," American Economic Review, American Economic Association, vol. 94(4), pages 991-1013, September.
    28. Robert E. Hall & Alan B. Krueger, 2012. "Evidence on the Incidence of Wage Posting, Wage Bargaining, and On-the-Job Search," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 56-67, October.
    29. David H. Autor & David Scarborough, 2008. "Does Job Testing Harm Minority Workers? Evidence from Retail Establishments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 219-277.
    30. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-862, December.
    31. Stephen V. Burks & Bo Cowgill & Mitchell Hoffman & Michael Housman, 2015. "The Value of Hiring through Employee Referrals," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(2), pages 805-839.
    32. Barron, John M & Black, Dan A & Loewenstein, Mark A, 1989. "Job Matching and On-the-Job Training," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 1-19, January.
    33. Jennifer Doleac & Benjamin Hansen, 2016. "Does “Ban the Box†Help or Hurt Low-Skilled Workers? Statistical Discrimination and Employment Outcomes when Criminal Histories are Hidden," Working Papers id:11170, eSocialSciences.
    34. Nicola Persico, 2004. "Committee Design with Endogenous Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 165-191.
    35. Amanda Pallais, 2014. "Inefficient Hiring in Entry-Level Labor Markets," American Economic Review, American Economic Association, vol. 104(11), pages 3565-3599, November.
    36. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(3), pages 355-374.
    37. Fabian Lange, 2007. "The Speed of Employer Learning," Journal of Labor Economics, University of Chicago Press, vol. 25(1), pages 1-35.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kässi, Otto & Lehdonvirta, Vili, 2018. "Do Digital Skill Certificates Help New Workers Enter the Market? Evidence from an Online Labour Platform," SocArXiv 7tybd, Center for Open Science.
    2. Khanna, Shantanu, 2020. "Salary History Bans and Wage Bargaining: Experimental Evidence," Labour Economics, Elsevier, vol. 65(C).
    3. Moshe A. Barach & Joseph M. Golden & John J. Horton, 2020. "Steering in Online Markets: The Role of Platform Incentives and Credibility," Management Science, INFORMS, vol. 66(9), pages 4047-4070, September.
    4. Sourav Sinha, 2022. "US Salary History Bans -- Strategic Disclosure by Job Applicants and the Gender Pay Gap," Papers 2202.03602, arXiv.org.
    5. Apostolos Filippas & John J. Horton & Joseph M. Golden, 2019. "Reputation Inflation," NBER Working Papers 25857, National Bureau of Economic Research, Inc.
    6. John Horton, 2017. "Price Floors and Employer Preferences: Evidence from a Minimum Wage Experiment," CESifo Working Paper Series 6548, CESifo.
    7. Benjamin Hansen & Drew McNichols, 2020. "Information and the Persistence of the Gender Wage Gap: Early Evidence from California's Salary History Ban," NBER Working Papers 27054, National Bureau of Economic Research, Inc.
    8. Jeffrey A. Mello, 2019. "Why the Equal Pay Act and Laws Which Prohibit Salary Inquiries of Job Applicants Can Not Adequately Address Gender-Based Pay Inequity," SAGE Open, , vol. 9(3), pages 21582440198, August.
    9. Moshe A. Barach & Joseph M. Golden & John J. Horton, 2019. "Steering in Online Markets: The Role of Platform Incentives and Credibility," NBER Working Papers 25917, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ashley C. Craig, 2023. "Optimal Income Taxation with Spillovers from Employer Learning," American Economic Journal: Economic Policy, American Economic Association, vol. 15(2), pages 82-125, May.
    2. Lee, Logan M. & Waddell, Glen R., 2021. "Diversity and the timing of preference in hiring decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 184(C), pages 432-459.
    3. Joanna N. Lahey & Douglas R. Oxley, 2018. "Discrimination at the Intersection of Age, Race, and Gender: Evidence from a Lab-in-the-field Experiment," NBER Working Papers 25357, National Bureau of Economic Research, Inc.
    4. Oyer, Paul & Schaefer, Scott, 2011. "Personnel Economics: Hiring and Incentives," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 20, pages 1769-1823, Elsevier.
    5. Amanda Agan & Sonja Starr, 2016. "Ban the Box, Criminal Records, and Statistical Discrimination: A Field Experiment," Working Papers 598, Princeton University, Department of Economics, Industrial Relations Section..
    6. Hunt, Priscillia E & Smart, Rosanna, 2020. "Investigation of Employers' Preferences for the Design of Staffing Agency Incentives to Hire Ex-Felons," IZA Discussion Papers 13520, Institute of Labor Economics (IZA).
    7. Daniel Kreisman & Jonathan Smith & Bondi Arifin, 2023. "Labor Market Signaling and the Value of College: Evidence from Resumes and the Truth," Journal of Human Resources, University of Wisconsin Press, vol. 58(6), pages 1820-1849.
    8. Darolia, Rajeev & Mueser, Peter & Cronin, Jacob, 2021. "Labor market returns to a prison GED," Economics of Education Review, Elsevier, vol. 82(C).
    9. Martin Abel & Rulof Burger & Patrizio Piraino, 2017. "The value of reference letters," Working Papers 06/2017, Stellenbosch University, Department of Economics.
    10. Chen Liang & Yili Hong & Bin Gu, 2017. "Home Bias in Global Employment," Working Papers 17-06, NET Institute.
    11. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    12. Abebe, Girum & Caria, Stefano & Fafchamps, Marcel & Falco, Paolo & Franklin, Simon & Quinn, Simon & Shilpi, Forhad, 2017. "Matching firms and workers in a field experiment in Ethiopia," LSE Research Online Documents on Economics 86572, London School of Economics and Political Science, LSE Library.
    13. Bartosz Maćkowiak & Filip Matějka & Mirko Wiederholt, 2023. "Rational Inattention: A Review," Journal of Economic Literature, American Economic Association, vol. 61(1), pages 226-273, March.
    14. Simon Jäger & Benjamin Schoefer & Samuel Young & Josef Zweimüller, 2020. "Wages and the Value of Nonemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 1905-1963.
    15. Jed DeVaro & Michael Waldman, 2012. "The Signaling Role of Promotions: Further Theory and Empirical Evidence," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 91-147.
    16. Mitchell Hoffman & Lisa B Kahn & Danielle Li, 2018. "Discretion in Hiring," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 765-800.
    17. M. Antonella Mancino & Leonardo Fabio Morales & Diego F. Salazar, 2023. "Signaling Worker Quality in a Developing Country: Lessons from a Certification Program," Borradores de Economia 1259, Banco de la Republica de Colombia.
    18. Anders Frederiksen & Lisa B. Kahn & Fabian Lange, 2020. "Supervisors and Performance Management Systems," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2123-2187.
    19. David Neumark, 2018. "Experimental Research on Labor Market Discrimination," Journal of Economic Literature, American Economic Association, vol. 56(3), pages 799-866, September.
    20. Laouénan, Morgane & Rathelot, Roland, 2017. "Ethnic Discrimination on an Online Marketplace of Vacation Rental," CAGE Online Working Paper Series 318, Competitive Advantage in the Global Economy (CAGE).

    More about this item

    Keywords

    field experiments; compensation; search and screening;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • M50 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - General
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_6559. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.