Bargaining and Inequality in the Labor Market

Abstract: This paper introduces and validates a survey tool to measure firms' wage bargaining strategies. Using the strategies we elicited for 772 German firms, we document that firms that do and do not individually bargain over wages are similar in productivity and size. However, firms' strategies systematically differ across groups of workers. We use survey data we collected from more than 10,000 workers to describe how bargaining events typically unfold. Many events consist of several rounds of back-and-forth negotiation and begin with workers providing their salary expectations. Most offers are rejected. High AKM person-effect individuals, less risk-averse individuals, and men are more likely to provide their expectations and to negotiate after an initial offer is made. These differences translate into sizable wage gaps at firms where pay is set by bargaining.