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Making it public: The effect of (private and public) wage proposals on efficiency and income distribution

Author

Listed:
  • Lara Ezquerra

    (Universidad de las Islas Baleares, Spain)

  • Joaquin Gomez-Minambres

    (Lafayette College, Department of Economics and Chapman University, Economic Science Institute.)

  • Natalia Jiminez

    (Universidad Pablo Olavide, Spain)

  • Praveen Kujal

    (Middlesex University)

Abstract
The implications of (public or private) pre-play communication and information revelation in a labour relationship is not well understood. We address these implications theoretically and experimentally. In our baseline experiments, the employer offers a wage to the worker who may then accept or reject it. In the public and private treatment, workers, moving first, make a non-binding private or public wage proposal. Our theoretical model assumes that wage proposals convey information about a worker's minimum acceptable wage and are misreported with a certain probability. It predicts that, on average, wage proposals lead to higher wage offers and acceptance rates, with the highest wages under private proposals. While both, public and private, proposals increase efficiency over the baseline, private proposals generate higher worker incomes. Broad support for the theoretical predictions is found in the laboratory experiments. Our work has important implications for recent policies promoting public information on wage negotiations. We find that while wage proposals promote higher wages, efficiency, and income equality, public information on wage negotiations is likely to benefit firms more than workers.

Suggested Citation

  • Lara Ezquerra & Joaquin Gomez-Minambres & Natalia Jiminez & Praveen Kujal, 2021. "Making it public: The effect of (private and public) wage proposals on efficiency and income distribution," Working Papers 21-12, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:21-12
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/349/
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    References listed on IDEAS

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    More about this item

    Keywords

    wage negotiations; cheap talk; 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
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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