Outside Options, Bargaining, and Wages: Evidence from Coworker Networks (Job Market Paper) with Nikolaj Harmon
Abstract: This paper analyzes the link between wages and outside employment opportunities. To overcome the fact that factors that affect a worker’s outside options may also impact her productivity at her current job, we develop a strategy that isolates changes in a worker's information about her outside options. This strategy relies on the fact that individuals often learn about jobs through social networks, including former coworkers. We implement this strategy using employer-employee data from Denmark that contain monthly information on wages and detailed measures of worker skills. We find that increases in labor demand at former coworkers’ current firms lead to job-to-job mobility and wage growth. Consistent with theory, larger changes are necessary to induce a job-to-job transition than to induce a wage gain. Specification tests leveraging alternative sources of variation suggest these responses are indeed due to information rather than unobserved demand shocks. Impacts on earnings are concentrated among workers in the top half of the skill distribution. Finally, we use our reduced-form estimates to identify a structural model that allows us to estimate bargaining parameters and investigate the relevance of wage posting and bargaining across different skill groups.
Monopsony and the Gender Wage Gap: Experimental Evidence from the Gig Economy with Emily Oehlsen
Abstract: When firms have market power in the labor market, they have an incentive to wage discriminate between workers based on their ability or willingness to leave for better wages elsewhere. We use data from a series of field experiments to estimate firm substitution elasticities for men and women and measure the potential for a wage gap to emerge due to monopsonistic discrimination. In collaboration with a national ride-share company, we randomly offered samples of male and female drivers wage increases. Treated drivers differed in both the size of the wage increase they were offered and the ease with which they could substitute hours to competing ride-share companies. Changes in hours worked for drivers that could not easily substitute identify intensive and extensive margin Frisch elasticities for men and women. Variation in access to competing platforms identifies firm substitution elasticities. We find that women have Frisch elasticities double those of men on both the intensive and extensive margins. However, women seem no less willing than men to switch firms in response to changes in relative wages. These results fail to support the hypothesis that gender differences in labor supply response are important for pay gaps for low-skilled workers.
Uber vs. Taxi: A Driver's Eye View with Joshua Angrist and Jonathan Hall
Press Coverage: VoxEU US News
Abstract: Ride-hailing drivers pay a proportion of their fares to the ride-hailing platform operator, a commission-based compensation model used by many internet-mediated service providers. To Uber drivers, this commission is known as the Uber fee. By contrast, traditional taxi drivers in most US cities make a fixed payment independent of their earnings, usually a weekly or daily medallion lease, but keep every fare dollar net of expenses. We assess these compensation models from a driver's point of view using an experiment that offered random samples of Boston Uber drivers opportunities to lease a virtual taxi medallion that eliminates the Uber fee. Some drivers were offered a negative fee. Drivers' labor supply response to our offers reveals a large intertemporal substitution elasticity, on the order of 1.2. At the same time, our virtual lease program was under-subscribed: many drivers who would have benefitted from buying an inexpensive lease chose to opt out. We use these results to compute the average compensation required to make drivers indifferent between ride-hailing and a traditional taxi compensation contract. The results suggest that ride-hailing drivers gain considerably from the opportunity to drive without leasing.
Outside Options in the Labor Market with Oren Danieli
Abstract: This paper develops a method to estimate the outside employment opportunities available to each worker, and to assess the impact of these outside options on wage inequality. We outline a matching model with two-sided heterogeneity, from which we derive a sufficient statistic, the “outside options index” (OOI), that captures the effect of outside options on wages, holding productivity constant. This OOI uses the cross-sectional concentration of similar workers across job types to quantify the availability of outside options as a function of workers’ commuting or moving costs, preferences, and skills. Higher concentration in a narrower range of job types implies lower OOI and higher dispersion across a wide variety of job types means higher OOI. We use administrative data to estimate the OOI for every worker in a representative sample of the German workforce. We estimate the elasticity between the OOI and wages using two sources of quasi-random variation in the OOI, that holds workers’ productivity constant: the introduction of high-speed commuter rail stations, and a shift-share (“Bartik”) instrument. Using this elasticity and the observed distribution of options, we find that differences in options explain 30% of the gender wage gap, 88% of the citizen-non-citizen wage gap, and 25% of the premium for higher education. Differences in options between genders and education groups are driven mostly by differences in the implicit costs of commuting and moving.
Tax Refund Expectations and Financial Behavior with Scott Nelson and Daniel Waldinger
Abstract: Many economic models predict that consumption decisions today depend on beliefs about risky future income. We quantify one contributor to income uncertainty and study its effects: uncertainty about annual tax refunds. In a low-income sample for whom tax refunds can be a substantial portion of income, we collect novel survey evidence on tax filers’ expectations of and uncertainty about their tax refunds; we then link these data with administrative tax data, a panel of credit reports, and survey-based consumption measures. We find that while many households have correct mean expectations about their refunds, there is substantial, and accurately reported subjective uncertainty. Households borrow moderate amounts out of expected tax refunds: for each dollar of expected refund, roughly 15 cents in revolving debt is repaid after refund receipt. Borrowing and repayment are less pronounced for more uncertain households, consistent with precautionary behavior. The unexpected component of tax refunds is not used to pay down debt, but rather induces higher debt levels. Credit report and survey evidence both suggest that these higher debt levels are driven by newly financed durable purchases such as vehicles, illustrating how unexpected income can induce propensities to consume above 1 by relaxing down-payment collateral constraints.
Research in Progress
High-Wage Firms and Entry-Level Labor Markets
Abstract: A recent literature has shown that a significant portion of an individual’s pay depends on where she works. In this paper I examine whether access to high wage firms, early in one’s career, has long-run consequences for employment or earnings. Because initial firm placement is endogenous, I use an instrumental variables strategy based on exploiting variation in the quality of available positions across different regions and occupations. Using administrative data from Germany, I find that individuals who get “lucky” in initial firm placement benefit in the long run. In ongoing work I am investigating three potential mechanisms: (1) human capital accumulation, (2) access to better job search networks, and (3) firms’ use of past firm quality as a signal of worker ability.
Employee Referrals and Match Quality with David Card
Abstract: An extensive body of research assumes that employee turnover patterns and returns to job seniority are driven by the stochastic process of learning about the quality of the match between a worker and a firm. A related literature on referrals assumes that existing employees can provide a signal of the quality of prospective matches. In this paper we use unique data from LinkedIn on referrals made in response to employer-initiated recruiting drives to test whether the job duration and promotion histories of employees who make referral recommendations provide information on the expected quality of the job match for the people they refer. Specifically, we estimate the strength of the “intergenerational” correlation between measures of job success for employees who make a referral and those they recommend. We test whether this correlation is stronger when the referrer and the referee are from similar backgrounds (e.g., colleges), or work in similar areas (e.g. engineering versus non-engineering jobs).
Market Power Trends in the Labor Market with Oren Danieli