Research
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 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 S. Li and R. Perez-Truglia (Under revision at the Review of Economic Studies)
Abstract: While U.S. legislation prohibits employers from sharing information about their employees' compensation with each other, companies are still allowed to acquire and utilize more aggregated data provided by third parties. Most medium and large firms report using this type of data to set salaries, a practice that is known as salary benchmarking. Despite their widespread use across occupations, there is no evidence on the effects of salary benchmarking. We provide a model that explains why firms are interested in salary benchmarking and makes predictions regarding the effects of the tool. Next, we measure the actual effects of these tools using administrative data from one of the leading providers of payroll services and salary benchmarks. The evidence suggests that salary benchmarking has a significant effect on pay setting and in a manner that is consistent with the predictions of the model. Our findings have implications for the study of labor markets and for ongoing policy debates.
with R. Perez-Truglia (Conditionally Accepted at the Journal of Public Economics)
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 J. Gilman, N. Roussille, and H. Sarsons
Abstract: What negotiation tactics make a union powerful? Under the premise that pay transparency would strengthen unions' bargaining position, the U.S. National Labor Relations Act jointly legalized the right to unionize and the right to share salary information. In this paper, we ask how pay transparency and pay inequality affect support for collective bargaining. We conduct a survey experiment with over 1,500 screenwriters and directors at the point where the Hollywood Guilds were renegotiating their multi-year contracts with the major U.S. Studios. We find that Guild members highly value information about others' pay but the Guild proactively limits access to their pay data. When we introduce pay transparency, we find that it erodes the perception that the Guild demands will meet member needs in the ongoing contract negotiation. In line with our empirical results, we propose a theoretical framework whereby benevolent unions withhold pay information to sustain member participation in collective bargaining.
with M. Hoffman, F. Koenig
Abstract: Employers report labor shortages even among low skill jobs. Why don't wages adjust dynamically to clear market demand? Exploiting randomized variation in wages for 1% of job postings on a large staffing platform, we show that a 10% increase in wages would increase the fill rate by more than 30% for a wide range of employers. Despite this, we find that many firms do not raise wages even when vacancies remain unfilled. A firm-side RCT shows that firms have strong underlying demand for marketplace intermediaries to automatically raise wages for unfilled jobs. The gap between manual wage adjustments and chosen automated wage adjustments appears driven by employer uncertainty about the state of the labor market, and adjustment costs. The RCT shows firms dynamically update their beliefs about the state of the labor market when vacancies go unfilled, but several parameters of the labor market shift simultaneously, generating conflation between labor shortages and mispricing. Our results suggest unfilled vacancies could fall by 20% with opt-in automated dynamic wages by marketplace intermediaries.
with T. Nicholas
Abstract: U.S. residents and representatives continue to demand limits to government data collection, restricting expansion of Census questions. Does this resistance stem from demand for privacy as a right, or fear of identifiable data use? We study individuals’ resistance to the expanded 1940 U.S. Census—the first federal census to include an income question. We find that non-disclosure rates are highest where the data best differentiates individuals, namely where local inequality is high and when the data collectors' response is distant from the respondents'. Inequality predicts non-disclosure better than political preferences, government spending, or religion. Non-disclosure also rises with past exposure to unanticipated uses of government data. These patterns of resistance are consistent with fears of identifiable data publication. We find non-disclosure distorts statistical inference, and downwardly biases measures of inequality.
with A. Bartik, E. Glaeser, M. Luca, C. Stanton, A. Sunderam (Under revision for Review of Economics and Statistics)
Abstract: What happens when public resources are allocated by private companies, whose objectives may be imperfectly aligned with policy goals? We study this question in the context of the Paycheck Protection Program (PPP), which relied on private banks to rapidly disburse aid to small businesses. Our model shows that delegation is optimal when delay is sufficiently costly, the variation of the impact of funds across firms is small, and the alignment between public and private objectives is high. We then use novel firm-level data to measure heterogeneity in the impact of PPP and to assess whether banks targeted loans to high-impact firms. Using an instrumental variables approach, we find that PPP loans increased business’s expected survival rates by approximately 10 to 20 percentage points and modestly boosted employment. While banks did target loans to their pre-existing customers, treatment effect heterogeneity is sufficiently moderate that delegation was likely a superior option compared to the high cost of delaying loans to improve targeting.
with A. Bartik, E. Glaeser, M. Luca and C. Stanton
Abstract: Drawing on surveys of small business owners and employees, we present four main findings about the evolution of remote work over the course of the COVID-19 pandemic. First, nearly half of employers transitioned employees to remote work during the pandemic and a third continue to allow remote work. Longer-term adoption tracks the Dingel and Neiman (2020) task-based measure of remote work suitability. Second, businesses increasingly perceive remote work as productive. At the beginning of the pandemic, 70 percent of small business owners reported a productivity dip due to remote work, but these patterns reversed by early 2021, with the median owner reporting a positive productivity impact. Third, 12% of workers would accept a pay cut in excess of 10% to remain working from home but the majority would not accept lower pay, even in jobs deemed suitable for remote work. Finally, firms and workers both forecast that remote work will prevalent in the future. Taken together, our evidence points to productivity gains and some workers' preferences as the reasons for the persistence of remote work.