Do workers benefit from wage transparency rules?

We find that these rules induce firms to behave strategically with the aim of manipulating the information workers receive

Oliver Gürtler; Lennart Struth

2021

Scholarcy highlights

  • Wage differences between different worker groups have long been documented in the labor economics literature, in particular between female and male workers
  • The goal of the current paper is to provide a formal analysis of transparency rules and their effects on the wage-setting in firms
  • We have started by developing a model of wage negotiations, in which workers are uncertain about their contribution to the firm value when making wage demands to the firm
  • We have introduced a transparency rule into the model, and we have identified a class of equivalent rules that lead to an identical equilibrium outcome
  • We have found that the introduction of a transparency rule induces the firm to behave strategically with the aim of manipulating the information workers receive
  • We have shown that the effect of the rule on payoffs crucially depends on the hazard rate of the productivity distribution
  • For distributions with a decreasing hazard rate, transparency rules increase the workers’ payoffs, while for distributions with an increasing hazard rate, the opposite could happen

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