How Do Employers Use Compensation History?: Evidence from a Field Experiment

Abstract

We report the results of a field experiment in which treated employers could not observe the compensation history of job applicants, whereas control employers could. We find no evidence that treated employers relied more heavily on alternative signals of productivity. Instead, they responded by evaluating more applicants, and evaluating those applicants more intensively. They also responded by changing what kind of workers they evaluated: treated employers evaluated workers with about 7% lower past average wages and hired workers with about 16% lower past average wages. We find that these selection effects would also occur in equilibrium when all employers lacked wage history information, as a structural estimation of hiring shows workers have little incentive to adjust their wage bids in response to the change in employer preferences. Although we find no evidence that the treatment affected the fraction of employers bargaining, conditional upon bargaining, workers hired by treated employers struck better wage bargains for themselves.

JEL Classification: J01, J30, M50, M51