Research
with S. Li and R. Perez-Truglia (Accepted at Review of Economic Studies)
Abstract: Firms are allowed to use aggregate data on market salaries to set pay, a practice known as salary benchmarking. Using national payroll data, we study firms that gain access to a tool that reveals market benchmarks for each job title. Using a difference-in-differences design, we find that the benchmark information reduces salary dispersion by 25%. Thus, salary dispersion must stem partly from aggregate uncertainty about the salaries offered by other firms. Our model formalizes how salary dispersion can arise even in competitive labor markets for identical workers when such uncertainty exists, and we discuss implications for an ongoing policy debate.
Journal of Economic Perspectives 2024 Vol 38. (1), pp. 153-80
Abstract: Countries around the world are enacting pay transparency policies to combat pay discrimination. 71% of OECD countries have done so since 2000. Most are enacting transparency horizontally, revealing pay between co-workers of similar seniority within a firm. While these policies have narrowed co-worker wage gaps, they have also lead to demoralizing peer comparisons and caused employers to bargain more aggressively, lowering average wages. Other pay transparency policies, without directly targeting discrimination, have benefited workers by addressing broader information frictions in the labor market. Vertical pay transparency policies reveal to workers pay differences across different levels of seniority. Empirical evidence suggests these policies can lead to more accurate and more optimistic beliefs about earnings potential, increasing employee motivation and productivity. Cross-firm pay transparency policies reveal wage differences across employers. These policies have encouraged workers to seek jobs at higher paying firms and sharpened wage competition between employers. We discuss evidence on pay transparency's effects, and open questions.
with R. Perez-Truglia
Journal of Public Economics 2023 Vol. 104890
Abstract: The diffusion of salary information has implications for labor markets, such as wage discrimination policies and collective bargaining. Access to salary information is believed to be limited and unequal, but there is little direct evidence on the sources of these information frictions. Social scientists have long conjectured that privacy norms around salary (i.e., the ``salary taboo'') play an important role. We provide unique evidence of this phenomenon based on a field experiment with 755 employees at a large commercial bank in Southeast Asia. We show that many of its employees are both unwilling to reveal their salaries to coworkers and reluctant to ask coworkers about their salaries. These frictions persist, in smaller magnitude, when sharing less sensitive information on seniority. We discuss implications for pay transparency policies and the gender wage gap.
with Bobak Pakzad-Hurson
Econometrica 2023 Vol. 91 (3), pp. 765–802 (Lead Article)
Selected coverage: The New York Times Magazine, PBS, Economate Animation, The Economist
Abstract: The discourse around pay transparency has focused on partial equilibrium effects: how workers rectify pay inequities through informed renegotiation. We investigate how employers respond in equilibrium. We study a model of bargaining under two-sided incomplete information. Our model predicts that transparency reduces the individual bargaining power of workers, leading to lower average wages. A key insight is that employers credibly refuse to pay high wages to any one worker to avoid costly renegotiations with others. When workers have low individual bargaining power, pay transparency has a muted effect. We test our model with an event-study analysis of U.S. state-level laws protecting the right of private-sector workers to communicate salary information with their coworkers. Consistent with our theoretical predictions, transparency laws empirically lead wages to decline by approximately 2%, and wage declines are smallest in magnitude when workers have low individual bargaining power.
with Ricardo Perez-Truglia
American Economic Review 2023 Vol. 113 (7), pp. 1703-1740 (Lead Article)
Selected coverage: NPR Planet Money, MarketPlace, The Visible Hand, Bloomberg, Forbes, HBR, Der Spiegel
Abstract: Offices are social places. Employees and managers take coffee breaks together, go to lunch, hang out over drinks, and talk about family and hobbies. In this study, we show that employees' social interactions with their managers are advantageous for their careers and that this phenomenon contributes to the gender pay gap. We use administrative and survey data from a large financial institution. We estimate the impact of social interactions on career progression using quasi-random variation induced by the rotation of managers, along with the smoking status of managers and employees. When male employees who smoke transition to male managers who smoke, they take breaks with their managers more often and are subsequently promoted at higher rates. The smoker-to-smoker advantage is not accompanied by any differences in effort or performance. Moreover, we find that the male-to-male advantage is also only present among employees who work in close proximity to their managers, limiting the mechanism to channels requiring face-to-face interaction. The male-to-male advantage explains a third of the gender gap in promotions at this firm.
with Will Dobbie and Mitch Hoffman
Abstract: We experimentally test several approaches to increasing the demand for workers with a criminal record on a nationwide staffing platform by addressing potential downside risk and productivity concerns. The staffing platform asked hiring managers to make a series of hypothetical hiring decisions that impacted whether workers with a criminal record could accept their jobs in the future. We find that 39% of businesses in our sample are willing to work with individuals with a criminal record at baseline, which rises to over 50% when businesses are offered crime and safety insurance, a single performance review, or a limited background check covering just the past year. Wage subsidies can achieve similar increases but at a substantially higher cost. Based on our findings, the staffing platform relaxed the criminal background check requirement and offered crime and safety insurance to interested businesses.
with Ricardo Perez-Truglia
Journal of Political Economy 2022 Vol. 130 (3), pp. 766–822
Selected coverage: The Wall Street Journal, Harvard Business Review
Abstract: The vast majority of the pay inequality in an organization comes from differences in pay between employees and their bosses. But are employees aware of these pay disparities? Are employees demotivated by this inequality? To address these questions, we conducted a natural field experiment with a sample of 2,060 employees from a multibillion-dollar corporation in Southeast Asia. We make use of the firm's administrative records alongside survey data and information-provision experiments. First, we document large misperceptions among employees about the salaries of their managers and smaller but still significant misperceptions of the salaries of their peers. Second, we show that these perceptions have a significant causal effect on the employees' own behavior. When they find out that their managers earn more than they thought, employees work harder, on average. In contrast, employees do not work as hard when they find out that their peers earn more. We provide suggestive evidence of the underlying causal mechanisms, such as career concerns and social preferences. We conclude by discussing the implications of pay inequality and pay transparency.
with Dylan Balla-Elliott, Ed Glaeser, Mike Luca, and Chris Stanton
Abstract: The COVID-19 pandemic led to dramatic economic disruptions, including governmentimposed restrictions that temporarily shuttered millions of American businesses. We present three main facts about business owners' decisions to reopen at the end of the lockdowns, using a nation-wide survey of thousands of small business owners. First, a plurality of firms reopened within days of the end of legal restrictions, suggesting that the lockdowns were generally binding for businesses - although a sizable minority delayed their reopening. Second, decisions to delay reopenings were not driven by concerns about employee or customer health. Instead, businesses in high-proximity sectors planned to reopen more slowly because of expectations of stricter regulation. Third, pessimistic demand projections primarily explain delays among firms that could legally reopen. Owners expected demand to be one-third lower than before the crisis throughout the pandemic. Using experimentally induced shocks to perceived demand, we find that a 10% decline in expected demand results in a 1.5 percentage point (8%) increase in the likelihood that firms expected to remain closed for at least one month after being legally able to open.
with Alex Bartik, Marianne Bertrand, Edward L. Glaeser, Michael Luca, and Christopher Stanton
Abstract: To explore the impact of COVID on small businesses, we conducted a survey of more than 5,800 small businesses between March 28 and April 4, 2020. Several themes emerged. First, mass layoffs and closures had already occurred-- just a few weeks into the crisis. Second, the risk of closure was negatively associated with the expected length of the crisis. Moreover, businesses had widely varying beliefs about the likely duration of COVID-related disruptions. Third, many small businesses are financially fragile: the median business with more than $10,000 in monthly expenses had only about two weeks of cash on hand at the time of the survey. Fourth, the majority of businesses planned to seek funding through the CARES act. However, many anticipated problems with accessing the program, such as bureaucratic hassles and difficulties establishing eligibility. Using experimental variation, we also assess take-up rates and business resilience effects for loans relative to grants-based programs.
with Chiara Farronato
Abstract: We study the growth of online peer-to-peer markets. Using data from TaskRabbit, an expanding marketplace for domestic tasks at the time of our study, we show that growth varies considerably across cities. To disentangle the potential drivers of growth, we look separately at demand and supply imbalances, network effects, and geographic heterogeneity. First, we find that supply is highly elastic: in periods when demand doubles, sellers perform almost twice as many tasks, prices hardly increase, and the probability of requested tasks being matched falls only slightly. The first result implies that in markets where supply can accommodate demand fluctuations, growth relies on attracting buyers at a faster rate than sellers. Second and perhaps most surprisingly, we find no evidence of network effects in matching: doubling the number of buyers and sellers only doubles the number of matches. Third, we show that the cities where market fundamentals promote efficient matching of buyers and sellers are also those that are the fastest-growing. This heterogeneity in matching efficiency is related to two measures of market thickness: geographic density (buyers and sellers living close together) and level of task standardization (buyers requesting homogeneous tasks). Our results have two main implications for peer-to-peer markets in which network effects are limited by the local and time-sensitive nature of the services exchanged. First, marketplace growth largely depends on strategic geographic expansion. Second, a competitive rather than winner-take-all equilibrium may arise in the long run.
with R. Perez-Truglia, B. Pakzad-Hurson
with J. Gilman, N. Roussille
with T. Nicholas
with M. Hoffman, F. Koenig
with A. Bartik, E. Glaeser, M. Luca, C. Stanton, A. Sunderam (Under revision for Review of Economics and Statistics)
with A. Bartik, E. Glaeser, M. Luca and C. Stanton (Accepted Journal of Economic Management and Strategy)