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The effect of wage proposals on efficiency and income distribution

Author

Listed:
  • Ezquerra, Lara
  • Gómez-Miñambres, Joaquín
  • Jimenez, Natalia
  • Kujal, Praveen
Abstract
Pre-play non-binding communication in organizations is prevalent. We study the implications of pre-play, private and public, wage proposals in labor markets. To that end, we develop a theoretical model from which we derive certain hypothesis that we test through a laboratory experiment. In the baseline, that depicts a typical labor market interaction, the employer makes a wage offer to the worker who may then accept or reject it. In subsequent treatments, workers, moving first, make private, non-binding, wage proposals to the employer. In a following treatment, the proposals are made public. Our findings suggest that both private and public wage proposals promote higher wages, efficiency, and income equality. Public information on wage proposals benefits firms more than workers while, workers benefit more under private proposals where income inequality is the lowest. We find some support in our data on workers conforming to their co-workers’ wage proposals when these are public. Finally, the gender gap observed in the baseline on acceptance rates and workers’ income vanishes when proposals are present.

Suggested Citation

  • Ezquerra, Lara & Gómez-Miñambres, Joaquín & Jimenez, Natalia & Kujal, Praveen, 2023. "The effect of wage proposals on efficiency and income distribution," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 469-493.
    • Handle: RePEc:eee:jeborg:v:216:y:2023:i:c:p:469-493
    DOI: 10.1016/j.jebo.2023.10.006
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    More about this item

    Keywords

    Wage negotiations; Pre-play communication; Laboratory experiments; Ultimatum game; Wage proposals;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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