Felix Koenig, Carnegie Mellon University

Labor shortages are pervasive even when minimal skills are required. How do firms adjust wages over time to fill their jobs, and what prevents them from adjusting more dynamically? Using administrative data from a large staffing platform, we show that some firms dynamically adjust wages upwards as the start date approaches, as theory predicts, but many do not. A worker-focused RCT that randomly increased wages for certain jobs helps rule out that firms don't adjust pay dynamically because such increases are ineffective at filling jobs, and the estimated elasticity is also far less than infinite, indicating valuable scope for increasing pay within job. A separate firm-focused RCT indicates that firms have strong underlying demand for automatic wage adjustment, and surveys suggest the mechanism is firm inattention and uncertainty about labor supply. Beyond offering automation, addressing wage equity concerns seems to have little impact on increasing firm interest in dynamic wage adjustment, but providing information about the hiring elasticity further boosts firm demand, suggesting that imperfect information about cyclical swings in the labor market are a key constraint on efficient wage setting.

DATE: Friday, September 22, 2023

TIME: 3:30-5:00 p.m.

LOCATION: Fronczak 444