How Do Employers Use Compensation History?: Evidence From a Field Experiment

Abstract

We report the results of a field experiment in which treated employers could not observe the compensation history of their job applicants. Treated employers responded by evaluating more applicants, and evaluating those applicants more intensively. They also responded by changing what kind of workers they evaluated: treated employers evaluated workers with 7% lower past average wages and hired workers with 16% lower past average wages. Conditional upon bargaining, workers hired by treated employers struck better wage bargains for themselves. Using a structural model of bidding and hiring, we find that the selection effects we observe would also occur in equilibrium.

Shooting stars? Uncertainty in hiring entrepreneurs

“…As employers are unable to discover the true ability of each worker prior to employment, they rely on information gathered from signals that have proven to be effective in predicting workers' productivity. Within the classic Spence (1973) signaling framework, we advance an explanation for the effect of an entrepreneurial spell on the re-entry wage, which focuses on two signals: group identification (Borjas & Goldberg, 1978) and previous salary (e.g., Barach & Horton, 2017;Hall & Krueger, 2012).…”

“…The first group consists of individuals who re-enter the wage sector immediately following a spell of entrepreneurship, that is, the entrepreneurs, whereas the second group consists of workers without entrepreneurial experience, that is, the employees. Employers observe a signal of group affiliation-entrepreneurs or employees-as well as signals about individual ability-including the previous wage-by considering the candidates' résumés via job interviews or secondary sources (Barach & Horton, 2017). In our empirical setting, all entrepreneurs have wage employment experience, so we can observe their salary just before the entrepreneurial spell.…”

“…In other words, an intermittent spell of entrepreneurship is less informative about the expected productivity in future wage work than a consecutive career trajectory in paid employment. We develop this intuition by drawing on theories of signal substitution in hiring decisions (Agan & Starr, 2018;Autor & Scarborough, 2008;Barach & Horton, 2017;Bertrand & Mullainathan, 2004). This literature demonstrates that in the absence of one or more pieces of information, employers put more weight on other correlated signals in their screening process.…”

Sorting through Cheap Talk: Theory and Evidence from a Labor Market

“…The process is not an auction and neither the employer nor the worker are bound to accept any offer. Despite the possibility of back-and-forth bargaining, it is fairly rare, with about 90% of hired workers being hired at the wage they initially proposed (Barach and Horton, 2021). In this market, employers typically collect a more or less complete pool of applicants and then select a subset to interview and ultimately hire (which also seems to characterize the process in conventional markets (Davis and de la Parra, 2021)).…”

Why the Equal Pay Act and Laws Which Prohibit Salary Inquiries of Job Applicants Can Not Adequately Address Gender-Based Pay Inequity

“…One study has found that policies which limit employer access to wage history benefit those with relatively lower wages as employers without information on wage history arranged more face-to-face interviews and asked more questions during interviews than those employers who had wage information (Barach & Horton, 2017). These outcomes allow job applicants a greater opportunity to present their potential value and contributions to employers.…”