Wage Posting or Wage Bargaining? A Test Using Dual Jobholders

Abstract

This paper examines the behavior of dual jobholders to test a simple model of wage bargaining versus wage posting in which workers facing hours constraints in their primary job take a second, flexible-hours job for additional income. When a secondary job offers a sufficiently high wage, a worker either bargains with the primary employer for a wage increase or separates. The bargaining model provides a number of predictions that we test using matched employer-employee administrative data from Washington State. The estimates match the model’s predictions quite well. First, separation probabilities in the primary job are sensitive to wages in the secondary job, but hours are not. Second, hours and separations in the secondary job are sensitive to wages in the primary job due to income effects. Third, wage bargaining takes place mainly among workers in the highest wage quartile; for these workers, wage increases in the secondary job lead to wage increases in the primary job. In contrast, for workers in the lowest wage quartile, wage increases in the secondary job lead to higher separation rates but no significant wage increase in the primary job, consistent with wage posting. These patterns suggest that high-wage workers receive a larger share of the surplus generated by the employment relationship.