What's My Employee Worth? The Effects of Salary Benchmarking

Zoe B. Cullen, Shengwu Li and Ricardo Perez-Truglia

No 30570, NBER Working Papers from National Bureau of Economic Research, Inc

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-indifferences 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.

JEL-codes: D83 J31 J38 M52 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-hrm and nep-lma
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