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Bargaining and Inequality in the Labor Market

Author

Listed:
  • Sydnee Caldwell
  • Ingrid Haegele
  • Jörg Heining

Abstract

We use novel surveys of firms and workers, linked to administrative employer-employee data, to study the prevalence and importance of individual bargaining in wage determination. We show that simple survey questions accurately elicit firms’ bargaining strategies. Using the elicited strategies for 772 German firms, we document that the majority of firms are willing to engage in individual wage bargaining. Labor market factors predict firms’ strategies better than firm characteristics. Survey responses from nearly 10,000 full-time workers indicate that most worker-firm interactions begin with the worker providing their salary expectations. Most interactions end with the worker rejecting the offer and remaining at the incumbent firm. There is substantial heterogeneity in workers’ bargaining behavior, which translates into within-firm wage inequality. Firms that set pay via individual bargaining have a 3 percentage point higher gender wage gap.

Suggested Citation

  • Sydnee Caldwell & Ingrid Haegele & Jörg Heining, 2025. "Bargaining and Inequality in the Labor Market," NBER Working Papers 33396, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33396
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    More about this item

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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