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

Lara Ezquerra, Joaquin Gomez-Minambres, Natalia Jiminez and Praveen Kujal
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Lara Ezquerra: Universidad de las Islas Baleares, Spain
Natalia Jiminez: Universidad Pablo Olavide, Spain

Working Papers from Chapman University, Economic Science Institute

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.

Keywords: wage negotiations; cheap talk; laboratory experiments; ultimatum game; wage proposals (search for similar items in EconPapers)
JEL-codes: C72 C90 J31 M52 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa, nep-exp, nep-gth, nep-lma and nep-ltv
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Working Paper: Making it public: The effect of (private and public) wage proposals on efficiency and income distribution (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:21-12

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