Are Firms Stronger than Employees in Terms of Salary Bargaining Power? Evidence from China

Abstract

This paper aimed to analyze the salary bargaining power of employees and firms. Based on two-tier stochastic frontier model, this paper constructed a model to measure the bargaining power of employees and firms in the salary formation process. Taking Chinese A-share listed companies from 2017 to 2021 in the China Stock Market & Accounting Research Database (CSMAR) of GTA as samples, this paper conducted an empirical measurement of the bargaining power of both parties and the impact on employee salary. The results showed that: (1) The bargaining power of both employees and firms had a very important impact on the final salary, and employees had stronger bargaining power compared with firms; (2) About 75% employees made their salary higher than “Benchmark” salary through bargaining. The employee salary was 8.46% higher than "Benchmark" salary on average. With the increase of salary level, employees had stronger bargaining power in the process of salary formation. (3) The bargaining power of employees and firms was heterogeneous in firms with different ownership in different years, but the bargaining power of employees was generally stronger than that of firms.