Wage negotiations and strategic responses to transparency

Abstract

This paper experimentally investigates how exogenous and endogenous wage transparency affect the interactions between employers and employees in a labor environment characterized by gift exchange. After the first part of the experiment in which wage offers always remain private information, three treatments in the second part either make wages fully transparent or leave the choice to establish (costly) wage transparency either to employees or employers. When full transparency is induced exogenously, the share of equal wage offers increases in the second part. At the same time, employers and employees rarely induce wage transparency themselves. Moreover, in the treatment where employees could enforce transparency, average wage offers and performance are significantly lower than in the other treatments. Results from a control treatment indicate that employees’ requests for wage information are cost-sensitive. If information about co-employees’ wage offers is costless, employees almost always ask for this information, thus achieving nearly full wage transparency. Further analyses reveal that wage offers in the second part seem to be higher under transparency than under non-transparency of wage offers.