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Brencic 2012
Brencic 2012
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Wiley and Canadian Economics Association are collaborating with JSTOR to digitize, preserve
and extend access to The Canadian Journal of Economics / Revue canadienne d'Economique
Abstract. Recent studies of search theory examine how employers use a wage-setting
mechanism - either by bargaining or through the posting of a non-negotiable wage offer
in a job ad - to facilitate search. We contribute to this literature by examining wage
posting in job ads in the US, the UK, and Slovenia. Despite considerable differences in
the incidence of wage posting, employers in all three markets are less likely to post a wage
offer when searching for skilled workers. The decision on whether or not to post a wage
offer is only weakly related to the outcomes of employers' search. JEL classification: J23,
M51
L'annonce du salaire : resultats a partir des annonces d'emplois. Des etudes recentes de
la theorie de la recherche d'employes examinent comment les employeurs utilisent le
mecanisme de determination des salaires - soit par marchandage, soit en mentionnant
une offre de salaire non-negociable dans l'annonce de l'ofifre d'emploi - pour faciliter
le processus de recherche. On examine les salaires mentionnes dans les annonces d'offre
d'emplois aux Etats-Unis, au Royaume-Uni, et en Slovenie. Malgre des differences con
siderables dans l'incidence de l'annonce du salaire, les employeurs dans ces trois marches
sont moins susceptibles d'annoncer un salaire quand ils cherchent des travailleurs qual
ifies. La decision d'annoncer un salaire ou non est seulement faiblement reliee aux resultats
de la recherche des employeurs.
1. Introduction
Search and matching models are used extensively as a framework for improving
our understanding of the key characteristics of the labour market, such as the
rate and duration of unemployment and job vacancies. These models stipulate
The author wishes to thank two referees for many helpful comments which have significantly
improved the paper. Email: vbrencic@ualberta.ca
that the terms of employment agreed between a worker and an employer are
determined by one of two wage-setting mechanisms, namely, by bargaining or
through the posting of a non-negotiable wage offer in a job ad (i.e., a 'take-it-or
leave-it' wage offer). A recent line of research has examined in more detail how
wages are set, by incorporating the employers' choice of wage-setting mechanism
into the search models (Ellingsen and Rosen 2003; Michelacci and Suarez 2006
Delacroix and Shi 2007).1
These recent studies offer insights into new trade-offs that employers and
job searchers must consider when they search and how the choice of wage
setting mechanism affects the performance of the labour market (in terms o
the responsiveness of unemployment rate to shocks, wage inequality, and match
quality). However, to date, little empirical evidence has been presented on the
prevalence and determinants of wage posting and bargaining. One exception is
Hall and Krueger (2008, 2010), who used survey data from the US to document
the number and types of workers who had information about the wage offer before
their interview with their most recent employer and of those who bargained when
interviewing for their most recent job.2
We use vacancy data sets for three distinct labour markets: vacancies posted
on the online job board Monster.com in 2006 in the US, vacancies registered at a
local careers centre in the UK between 1988 and 1992, and vacancies registered
with a public employment agency in Slovenia in 2001. The attribute common to
all three data sets is that employers had the option to include a wage offer when
describing their vacancies in the job ads. These descriptions of job offers were
seen by job searchers and the offers therefore had the potential to affect their job
search. By drawing on these data, we examine the incidence and determinants of
the decision to specify a wage in a job ad, together with the outcomes associated
with such a wage posting.
The analysis of the data revealed that the incidence of wage posting differed
considerably across the three labour markets. Employers posted wage offers in
18% and 25% of the vacancies in the Slovenian and US samples, respectively,
compared with 86% of the vacancies in the UK sample. Furthermore, the posted
wage offers were more diverse compared with a fixed wage offer that is typically
assumed in the search models. We find that employers posted negotiable, non
negotiable, approximate, minimum, and maximum wage offers.
Despite these differences in the degree to which the posted wage offers were
negotiable and in the distinct nature of the three labour markets, some common
1 The related literature on the decision of employers to negotiate after the recruitment has focused
on employers' efforts to retain rather than recruit workers (e.g., Mortensen 1978). The literature
on the choices of price-setting mechanisms by sellers is also related to our study (e.g., Bester
1993; McAfee 1993; Peters 1994).
2 Several empirical studies examined how sellers choose price-setting mechanism. Most of these
analyzed the use of a 'Buy-It-Now' option on online auction sites such as eBay (e.g., Durham,
Roelofs, and Standifird 2004; Ackerberg, Hirano, and Shahriar 2006; Anderson et al. 2007,
2008; Wang, Montgomery, and Srinivasan 2008). By contrast, Zeng, Dasgupta, and Weinberg
(2008) examined how the adoption of a 'no haggle' policy by Canadian car dealerships affected
their sales growth and prices.
patterns emerged with regards to the determinants of wage posting. In our anal
ysis of these results, we relied on studies that focus on different trade-offs consid
ered in the decision of employers to post a wage offer in job ads. All these studies
consider search to be directed (job searchers observe announcements about the
wage offers at the start of the search), but differ in terms of their focus on worker
heterogeneity (Michelacci and Suarez 2006), attributes of the meeting technology
(Eeckhout and Kircher 2010), or job heterogeneity (Acemoglu and Shimer 1999;
Delacroix and Shi 2007).
The most notable empirical finding is that employers were more likely to post
a wage offer in their job ads when they were less concerned about attracting
an adversely affected pool of job applicants, that is, when a recruitment agency
screened the job applicants, when the opportunity costs of the search were high
(i.e., the job ad indicated that the job had to be filled immediately) and employers
were therefore less likely to be selective, or when employers aimed to hire workers
with fewer skills or with skills that were easier to observe and measure.
This finding is consistent with the key prediction in Michelacci and Suarez
(2006) that, in their decisions to post wage offers, employers consider the trade-off
between improved search efficiency and the adversely affected pool of applicants
that the posted wage attracts. That is, by changing the level of the offer, employers
can influence the number of job searchers who apply for the job and can therefore
mitigate the inefficiencies that occur when the search is random. However, to the
extent that the posted offer is contractually binding and cannot be contingent
on all worker attributes, an employer who posts an offer attracts less productive
applicants because the fixed wage offer protects these job applicants against their
productivity disadvantage.
For this trade-off to exist, job searchers must be able to see wage offers before
they apply for jobs and employers must be committed to the wage posted. That
said, we found that the main finding was weaker when we examined the decision
of an employer to post a negotiable wage or when employers offered a wider
wage range. This finding suggests that concerns about adverse selection played a
smaller role in the decision of employers to post a wage offer when the posted
offer no longer fully protected less productive workers against their productivity
disadvantage. Based on the data sets for the UK and Slovenia, we also found
some, although rather weak, evidence that the decision to post a wage offer was
linked to the quality of the new hire.
Four other remarks are worth noting. First, larger firms were less likely to post
a wage offer. This finding can be interpreted in at least two ways. If monitoring
is more costly in larger firms (Mellow 1982; Oi 1983), these firms have more to
lose by hiring bad workers and for this reason avoid posting wage offers that -
according to Michelacci and Suarez (2006) - attract less productive job appli
cants. Larger firms might also have access, through their personnel departments,
to a non-rival meeting technology that can process many job applications in a
short time interval (van Ours and Ridder 1992; Barron, Berger, and Black 1997;
Russo et al. 2000). According to this interpretation, the finding is consistent with
Eeckhout and Kircher (2010), who show that wage posting is not optimal when
the meeting technology is sufficiently non-rival, because its key benefit (screening
of heterogeneous workers) is ensured by other mechanisms such as an auction.
Second, we found that employers that differed in their decisions to post a
wage offer in a job ad on the Monster.com job board also differed in the amount
of information that they provided about the tasks that were expected of a new
hire. This finding is line with predictions by Acemoglu and Shimer (1999) and
Delacroix and Shi (2007), who demonstrate that employers are more likely to
post a wage offer when there is a greater degree of certainty about the tasks that
a job entails. That is, as long as information about a job type is public, employers
prefer to post a wage offer - rather than bargain - because they can recoup
their investment in their jobs by exploiting the trade-off between the level of the
offered wage and the hiring probability.
Third, in our analysis, we relied on the information about wage offers that
employers reported in job ads. In contrast to the assumption in the search models,
these wage offers were not contractually binding. However, as long as these offers
constrained the range of wages within which bargaining could occur, our analysis
provides insights into the trade-offs in the models with an endogenous wage
setting mechanism. In this regard, an insight by Menzio (2007) is of interest,
since it reveals that wage offers that are not contractually binding constrain
bargaining because they affect the job searchers' beliefs and, therefore, their
wage demands.3
Finally, given that we rely on descriptions of job vacancies, our analysis is
informative about the wage-setting process at the start of an employer's search.
In this regard, our findings complement those of Brencic and Norris (2010), who
found that employers rarely change the content of their job ads (e.g., information
about the wage, the level of the wage offered) while these are posted on online
job boards, of Hall and Krueger (2008, 2010), who documented how wages are
set at the time of hiring (i.e., at the end of search), and of Barron, Berger, and
Black (2006), who examined when employers choose to renegotiate wages in an
effort to retain their workers.
The remainder of the paper is organized as follows. In sections 2 and 3, we
describe, respectively, the theoretical framework that motivates our analysis and
the data that we use in our empirical analysis. In section 4, we discuss the results.
Section 5 concludes.
2. Theoretical framework
Search theory relies on the notion that employers and workers must spend time
and other resources, respectively, in an effort to fill a job vacancy and find
3 The main findings persisted when we used general announcements about the division of output
as a measure of wage posting - examined by Menzio (2007, 749) - rather than a dollar amount
associated with a wage offer.
employment (Stigler 1961). One group of search models stipulates that employers
post wage offers in the job ads at the start of their search. According to these
models, search frictions correspond to the time that the workers need to gather
information about the wage offers. For the workers' search to be justified in this
setting, the market equilibrium must feature a non-degenerate distribution of
wage offers.
Several studies in this area set out to determine the conditions that ensure the
violation of the law of one price, that is, conditions that ensure the existence of
a non-degenerate wage distribution in the absence of productivity differentials.
These studies demonstrated that a pure wage distribution constitutes the market
equilibrium if job searchers (a) receive many wage offers in each period of search
either as an outcome of employers' search efforts (Butters 1977) or by assumption
(Burdett and Judd 1983), or (b) differ in terms of the value they place on leisure
(Albrecht and Axell 1984) or employment status (Burdett and Mortensen 1998).4
Although these early search models suppose that job searchers randomly sam
ple posted wage offers, recent directed search models stipulate that job searchers
observe all posted wage offers at the start of the search. In this context, Delacroix
and Shi (2006) showed that on-the-job search and differences in the workers' his
tories ensure existence of a pure wage distribution.5 Shi (2009) obtained an equi
librium wage distribution that is continuous rather than discrete (as in Delacroix
and Shi) as long as employers post wage offers that are contingent on tenure.6
The key assumption of these early search models and the more recent di
rected search models is that employers post contractually binding wage offers at
the beginning of the search. By contrast, in the random-matching models job
searchers apply to jobs at random and - once matched with a job vacancy - bar
gain over their starting wages (Mortensen 1978).7 The main difference between
these two wage-setting mechanisms is the commitment of the employer not to
negotiate a wage offer (Hall and Krueger 2010,2).8 Wage posting corresponds to
a case whereby employers commit to a wage offer at the very start of the search.
Once an employer has found a suitable applicant, the applicant can either ac
cept the offer or continue with the search. Bargaining entails an exchange of
offers until either an agreement is reached or search resumes. Given that these
wage-setting mechanisms affect the performance of the labour market (in terms
of wage inequality, match quality, and the responsiveness of unemployment to
4 In their estimation of Burdett and Mortensen (1998), van den Berg and Ridder (1998) and
Postel-Vinay and Robin (2002) find that up to 25% and 50%, respectively, of the wage dispersion
can be attributed to search frictions.
5 The model of Delacroix and Shi (2006) matches the empirical wage density better than other
search models.
6 Menzio and Shi (2010) analyzed different contractual arrangements and shocks outside the
steady state.
7 In the random-matching models, search frictions are summarized by the matching function and
arise due to the job searchers' failure to coordinate their job application decisions and capacity
constraints (i.e., a job searcher can send only one job application in each period of search).
8 Mortensen and Pissarides (1999, 2589-601), Kennes (2010), and Manning (2011, 990-7) review
other wage-setting mechanisms.
9 For example, employers can post wage offers that are contingent on education, but not on
attributes such as drive or team spirit, which can be assessed only after a worker starts working
at a new job.
10 Ellingsen and Rosen (2003, 236) also stipulate that the posted wage offers are incomplete.
11 In order to differentiate between the two explanations - by Michelacci and Suarez (2006) and
Ellingsen and Rosen (2003) - of the negative link between the decision of an employer to post a
wage offer and the dispersion in workers' productivity, information is required about the skill
Eeckhout and Kircher (2010) also focus on worker heterogeneity and - similar
to Michelacci and Suarez (2006) - consider search to be directed. In contrast to
Michelacci and Suarez, the authors demonstrate that the nature of the search fric
tions - summarized by meeting technology - affects the decision of an employer
to post a wage offer (1382). In particular, when meeting technology is rival (i.e.,
at most one meeting can occur in a short time interval), wage posting is optimal
because it screens heterogeneous workers perfectly.12 However, when meeting
technology is sufficiently non-rival, a random search that generates more meet
ings compared with directed search and ex post screening (e.g., with an auction)
is optimal.
In contrast to the three studies reviewed above, Acemoglu and Shimer (1999)
and Delacroix and Shi (2007) focus on an environment with job heterogeneity.
Both studies consider search to be directed. When information about the job
type is publicly available (Acemoglu and Shimer), wage posting is preferred to
bargaining. In contrast to bargaining, when posting a wage offer, a firm can
recoup its investment in a job by exploiting the trade-off between the offered
wage and the speed of hiring. However, when information about a job is private
(Delacroix and Shi), bargaining is preferred, provided that the job heterogeneity
is sufficiently small. That is, when jobs are similar, the posted wages fail either
to signal job type or to direct the applications of job searchers. One insight from
these two studies is that employers are more likely to post wage offers when the
tasks that a prospective worker is expected to do are known to job searchers, that
is, when there is little unobserved (private) information about what the job entails.
The key assumption in all these models is that employers post wage offers that
are contractually binding. Even in the absence of the commitment of employers
to the posted wage offers, trade-offs remain - although they are less pronounced
- as long as the posted wage offers constrain the range of wages within which
bargaining occurs (Michelacci and Saurez 2006, 1103, fnl2). Menzio (2007)
offers a relevant insight. Although Menzio considers an environment in which all
employers post wage offers, these offers do not constitute contractual obligations
but do affect job applicants' beliefs and hence their wage demands. By posting a
higher wage offer, employers increase the probability of meeting job applicants at
the expense of facing tougher wage demands. Only employers who can afford to
meet these tougher demands (i.e., are productive enough) will post higher wage
offers. Tougher wage demands translate into higher wages and guarantee that
posted wage offers and starting wages are correlated.13 For this reason, wage
offers that are not contractually binding can still direct job searchers' search.
composition of the pool of job applicants and of the pool of new hires. If wage offers are
publicly observable, then the directed search environment and subsequently the explanation of
Michelacci and Suarez (2006) seem more fitting.
12 In Eeckhout and Kircher (2010, 1355), a job is rival if each employer has only one job to fill.
13 This result holds as long as the labour market is neither too tight nor too slack. When there are
too many vacancies relative to job searchers, high wage offers are not credible. When there are
too few vacancies relative to job searchers, employers have no incentives to post high wage offers.
3. Description of data14
14 In the appendix, we provide descriptions of the variables and summary statistics for each data
set.
15 Compared with employers who registered vacancies on time, employers who filled vacancies
before registering them with the ESS were less likely to post a maximum wage offer, were more
likely to be smaller firms, were less likely to require a vocational certificate, did not receive
advance notice of the vacancy, were less likely to request the ESS for help, and were more likely
to have a vacancy that offered permanent rather than temporary employment.
TABLE 1
Incidence of wage posting
16 Andrews, Bradley, and Upward (2008, 461) discuss the importance of the Careers Serv
recruiting channel.
4. Findings
This section consists of five parts. We start with a descriptive review of the main
differences between the sample of jobs with a posted wage offer and the sample
of jobs without a posted wage offer (see tables in the appendix). Observations
from this preliminary analysis are confirmed by the results from the econometric
analysis that we review in the second and third parts of the section. In the fourth
part, we discuss the evidence in light of the theory of search. In the fifth part,
we review evidence from several robustness checks. That said, our empirical
analysis relies on the conjecture that an employer chose to post a wage offer if
a description of a job on a job board included information about a wage offer.
Hence, our measure of wage posting corresponds to a wage offer that was not
contractually binding and could be changed easily.19
17 The sample represents a small fraction of the online and total labour demand in the U.S. In July
2006, the Conference Board estimated the number of total new ads at over 1,200 online job
boards at 3.4 million.
18 Each posting has a unique number that constitutes its online address, which was used to check
each week whether or not a posting was removed from the website (for details, see Brencic and
Norris 2010).
19 Mader-Clark (2008, 46) warns of the legal problems due to false or exaggerated claims in job
ads. Our measure fits the description of wage posting by Hall and Krueger (2010, 16), who
'regard advance knowledge of the wage as evidence of wage posting.' However, Hall and
Krueger (2010, 4) also note that of the third of the surveyed workers who responded that they
knew exactly the wage before being interviewed for their most recent job, only two-thirds
understood the offer to be non-negotiable.
TABLE 2
Determinants of wage posting in job ads in Slovenia
Data source: Job vacancies registered with the Employment Service of Slovenia
1 if
1 if 1 if approximate
Dependent variable: 1 if wage approximate maximum wage offer
offer and 0 wage offer wage offer and 0 if
if no wage and 0 if no and 0 if no maximum
offer wage offer wage offer wage offer
(Continued)
TABLE 2
(Continued)
Data source: Job vacancies registered with the Employment Service of Slovenia
1 if
1 if 1 if approximate
Dependent variable: 1 if wage approximate maximum wage offer
offer and 0 wage offer wage offer and 0 if
if no wage and 0 if no and 0 if no maximum
offer wage offer wage offer wage offer
NOTES: (i) Heteroscedasticity robust standard errors are in parentheses, (ii) 'significant at 10%;
**significant at 5%; "'significant at 1%. (iii) Control variables not reported: dummy variables for
industry, work schedule, internship, and a series of dummy variables for missing data on work
experience, advance notice, firm size, work schedule, and permanent position, (iv) With the exception
of the marginal effect associated with the variable for advance notice, the results remain the same
when we restrict the sample to vacancies for which information on all attributes could be observed.
reported that bargaining took place when they were interviewed for their recent
jobs increased with their levels of education.
Work experience and other skill requirements: British employers who required
skills were 6.5 percentage points (7.6%) less likely to post a wage offer than em
ployers who did not specify a level of required skills (column 1 in table 3). We
do not find any association between the required skills and the likelihood that
employers posted a negotiable wage offer (column 3 in table 3). Slovenian em
ployers that required skills that were relatively easy to observe (e.g., skills related
to physical endurance, possession of a driver's licence, proficiency in foreign lan
guages) were more likely to post a wage offer compared with employers that did
not specify these requirements (table 2). However, employers who required skills
that were more difficult to observe (proficiency in the use of computer software,
independence, leadership) were less likely to post a wage offer than employers
that did not require these skills. Slovenian employers who searched for work
ers that had more work experience were also more likely to post a wage offer.
TABLE 3
Determinants of wage posting in job ads in the UK
1 if non
1 if non negotiable
negotiable 1 if negotiable wage offer
Dependent variable: 1 if wage offer wage offer wage offer and 0 if
and 0 if no and 0 if no and 0 if no negotiable
wage offer wage offer wage offer wage offer
NOTES: (i) Heteroscedasticity robust standard errors in parentheses, (ii) 'significant at 10%;
"significant at 5%; ""significant at 1%. (iii) Control variables not reported: dummy variables for
month and year in which a vacancy was filled and dummy variables for industry.
However, we do not find that these employers were more likely to post an approx
imate rather than a maximum wage, which is easier to negotiate. In the US data
(table 4), employers who required skills that were harder to observe (motivation
or drive, creativity) were less likely to post a wage offer than employers who
did not mention these skill requirements. In the US data set, we also find that
employers were more likely to post a wage offer in a job ad when the required
number of years of prior work experience increased above some threshold.
TABLE 4
Determinants of wage posting in job ads in the US
NOTES: (i) Heteroscedasticity robust standard errors in parentheses, (ii) 'significant at 10%; "significant
at 5%; ***significant at 1%. (iii) Control variables not reported: dummy variables for industry and region
categories (including dummy variables for missing data), length of job description, whether link to a
company's website provided, (iv) With the exception of a loss in significance of the marginal effect
associated with the variable for the immediacy with which a vacancy has to be filled, the results remain
the same when we restrict our sample to vacancies for which information on key vacancy attributes
could be observed (i.e., required education, work experience, and occupation category).
Search costs: We measure search costs by using an indicator variable that dif
ferentiates between vacancies that must be filled immediately and those that do
not. Unlike employers that are looking to fill a vacancy sometime in the future,
employers that must fill a vacancy immediately incur costs of interruptions in
their production processes if their vacancies remain unfilled (Burdett and Cun
ningham 1998, 452). In the US data set, employers with vacancies that had to be
filled immediately were 9.5 percentage points (38.3%) more likely to post a wage
offer than employers with vacancies that did not have to be filled immediately
(table 4). In the ESS data set, employers that were in a hurry to fill a vacancy were
more likely to post an approximate rather than a maximum wage offer compared
with employers that were not in a hurry (column 4 in table 2). These results are
consistent with the idea that, when continuing with the search is costly, employers
prefer to post wage offers in order to facilitate the search. However, we should
note that this finding is not robust to alternative specifications.
Menzio (2007) shows that employers are more likely to post uninformative
wage offers in their job ads when they search in either a very tight or a very
slack labour market. Using only the US data set, we constructed a variable
that measures the number of times an employer mentioned the term ASAP' or
'immediate' in job descriptions. We conjecture that employers who mentioned
these two terms more often incurred higher search costs and were more likely to
be recruiting in a tight labour market. Like Menzio, we observe an inverse-U
shaped relationship between the number of times the term 'asap' or 'immediate'
was mentioned and the likelihood that employers posted an informative wage
offer (i.e., a dollar amount).20
where <£(•) denotes the standard normal cumulative distribution function and Xa
vector of vacancy and firm attributes. Table 5 reports the estimates of marginal
effects.
Using the ESS data, it is possible to determine whether the qualifications
of a new hire differed from the required qualifications on the basis of a 5-digit
occupation code only (see Brencic 2010 for more details). Using this information,
we constructed a variable that identifies whether the first digit in the required
occupation code differed from the first digit in the new hire's actual qualification
code by at least one level. In the UK data, we observe whether a new hire's
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4.4. Discussion
In this subsection, we discuss how our findings can shed light on two s
predictions. First, the results from subsection 4.2 (on the determinants of w
posting) can be used to infer the trade-off in the decision of an employ
post a wage offer. In particular, whether the concerns about attracting less p
ductive job applicants (Ellingsen and Rosen 2003; Michelacci and Suarez 2
the concerns about recouping investment in the creation of productive jobs (
moglu and Shimer 1999; Delacroix and Shi 2007), or the attributes of the mee
technology (Eeckhout and Kircher 2010) affect the employers' decision to
a wage offer. In addition, we can comment on whether or not these trade-of
21 Our measures of match quality are similar to those in the literature (Hartog, 2000; McGu
2006).
are less likely to be considered when the employers post a negotiable wage offer
rather than a non-negotiable wage offer.
This first set of predictions corresponds to the comparison of market equi
libria - each with its optimal wage-setting mechanism - as a parameter (e.g.,
the dispersion in workers' productivity, the attribute of the meeting technology)
that characterizes these equilibria changes. To examine these predictions with the
data, one must assume that there are many segmented labour markets that are
differentiated by our explanatory variables. Changes in these explanatory var
ables correspond to the equilibria in different labour markets, that is, markets
that are differentiated by parameters measured by these explanatory variables.
That said, given that we do not observe exogenous changes in our explanatory
variables our analysis does not provide a definitive test of the theories.
Five findings from section 4.2 are informative of the first set of predictions
in that they suggest that concerns about adverse selection of job applicants play
a role in employers' decisions to post a wage offer. First, adverse selection is
likely to be of less concern when a recruitment agency facilitates an employer's
search, for instance, through the rigorous screening of job applicants. Because of
specialization, a recruitment agency might also have access to a better screening
technology compared with employers. The results from the probit estimations
that rely on the ESS and US data sets are consistent with this prediction. The
relatively high incidence of wage posting in the UK data set is also consistent
with this argument. Unlike the ESS and US data sets, the UK data set records
only vacancies registered at the careers centre, which offers pre-screening services
for employers, which help to alleviate the adverse selection problem.
Second, the evidence of a more likely use of wage posting by employers who
require fewer skills (i.e., less education) is also consistent with the adverse se
lection concerns. This statement relies on the following argument (for a similar
argument, see Barron, Berger, and Black 1997,173,174; Kuhn and Shen 2011,4).
Suppose that the value of the match is a function of general human capital (ob
served and measured by educational attainment) and innate ability (unobserved
and a source of concern about adverse selection). Suppose, further, that gen
eral human capital and innate ability are complementary inputs in determining
worker productivity. For a given distribution of innate ability, an employer who
searches to fill a vacancy that requires a higher level of human capital (e.g., edu
cation) is expected to draw from a more dispersed distribution of match values
and hence face greater concerns about adverse selection.22
Third, Michelacci and Suarez (2006, 1103) note that a maximum wage offer
indicates the preference of the employer in relation to bargaining. Consequently,
concerns about adverse selection are less important when an employer posts either
22 Hall and Krueger (2010,4) noted that jobs that are open to less educated workers tend to be
more homogeneous in terms of the tasks that the workers must perform and the skills that they
must possess.
a maximum wage offer or a negotiable wage offer because this offer no longer
fully protects less productive workers against their productivity disadvantage. Our
results are consistent with this prediction because they suggest that Slovenian and
British employers were more likely to post a wage offer that could more easily be
renegotiated when they were concerned more about adverse selection (column 4
in tables 2 and 3).
Fourth, Michelacci and Suarez (2006, 1099) note that the adverse selection of
job applicants occurs because of the difficulty of assessing worker productivity,
which supervisors can assess subjectively only after observing the worker on
the job (e.g., creativity, leadership). This absence of objective measures implies
that these attributes cannot be verified by courts. This in turn implies that it
is impossible to enforce wage contracts that are explicitly contingent on such
attributes. Hence, jobs for which these attributes are important are more likely
to be jobs where a posted wage offer will be incomplete and will attract job
applicants who posses low levels of these attributes. As a result, employers are
less likely to post wage offers when these attributes are important. The results in
subsection 4.2 are consistent with this argument.
Finally, as a worker accumulates experience on the job, the worker's skills
and other attributes are revealed, which is expected to decrease the dispersion of
unobserved component of worker's productivity. Consequently, adverse selection
is expected to be less of a concern when an employer is looking to hire a worker
with prior work experience. Our results that rely on the US and ESS data sets
suggest that required work experience plays a role in an employer's decision to
post a wage offer. Specifically, we find that employers who required more years
of work experience were more likely to post a wage offer in a job ad.
The results in tables 2 through 4 also suggest differences in wage posting
across firms that differ in size. Larger firms in Slovenia were less likely to include
wage information in their job ads. In the UK sample, firms with more than 100
employees were least likely to post a wage offer. This finding can be interpreted
in at least two ways. On the one hand, if monitoring is more costly in larger firms
(Mellow 1982; Oi 1983), these firms have more to lose by hiring bad workers and
as such they avoid posting wage offers that - according to Michelacci and Suarez
(2006) - attract less productive job applicants. On the other hand, larger firms
might have access through their personnel departments to a non-rival meeting
technology that can process many job applications in a short time frame (van
Ours and Ridder 1992; Barron, Berger, and Black 1997; Russo et al. 2000). When
meeting technology is sufficiently non-rival, Eeckhout and Kircher (2010) show
that wage posting is no longer optimal because its key benefit (i.e., the ability to
screen heterogeneous workers) is ensured by alternative mechanisms such as an
auction.23
23 Firm size may also identify the union status of employees or the importance of the internal
labour market.
The second set of predictions from the theory of search pertains to actions
that agents take for a fixed set of parameters within a market equilibrium that
allows for coexistence of wage posting and bargaining. Michelacci and Suarez
(2006) provide one such prediction; in particular, unproductive workers within a
separating equilibrium apply for jobs that have posted wage offers because these
offers protect them against their productivity disadvantage. Results in subsection
4.3 (linking the employers' decision to post a wage offer to the employers' search
outcomes) pertain to this prediction. For the approach in section 4.3 to be valid,
it must be the case that the posted wages are not contingent on all productivity
relevant attributes, including those advertised or observed. With regard to this
second type of prediction, the evidence is weak. We find very little evidence to
suggest that, compared with employers who did not post a wage offer, employers
who did so were more likely to hire a worker who did not match the employers'
hiring requirements.
that had been filled. In order to assess whether this difference affects the results,
we compared two samples from the ESS data set, namely, all registered vacancies
and only those registered vacancies that had been filled. By restricting the ESS
sample to filled vacancies, we get qualitatively similar results with one exception.
In particular, we no longer find that employers were more likely to post a wage
offer in their job ads if they had incurred higher costs of keeping a vacancy
unfilled.
One drawback of all three data sets is the lack of information on how employers
actually searched, for example, the activities they pursued in addition to posting
a job vacancy on a job board, either online or at an employment agency. To
account for such firm-level heterogeneity, we estimated a linear probability model
with firm-level fixed effects. We used only US and ESS data sets that record the
identification of employers. The results are consistent with the main results from
the baseline specification with one exception. In the ESS data set, we no longer
find that employers were more likely to post a wage offer when they incurred
higher costs of search.
The final two robustness checks pertain to alternative measures of wage post
ing. First, we calculated the difference between the maximum and minimum
wage offers based on the US sample. In the ESS sample, we calculated the differ
ence between the maximum and approximate wage offers. We conjecture that the
wider the range of wage offers, the less informative the wage offers, and there
fore the more likely it was that the starting wages were negotiated. We restricted
the sample to jobs with posted wage offers. In both samples, the range of the
wage offers was wider when employers searched for workers with higher levels of
education.
Second, Menzio (2007,749) showed that employers can direct job searchers by
posting non-contractual announcements about the offered wage (i.e., competitive
pay, wage commensurate with experience) in job ads. Upon the inclusion of these
announcements in the construction of the measure of wage posting in job ads on
the Monster.com job board, the incidence of wage posting increased from 24.8%
to 39.0%.26 The determinants are similar when we use a general description of
an offered wage in place of the variable that identifies a specific dollar amount
in a job posting. That is, these announcements were more likely when employers
were searching for workers with lower levels of education or were in a hurry to
fill a vacancy.
5. Conclusion
Employers pursue many activities in order to ensure that they recruit suitable
workers for their jobs. Some examples of these activities that have been examined
26 The incidence of wage posting increased from 39.0% to 74.3% once we restricted the sample - by
replicating the UK sample - to entry level jobs that were posted by recruitment agencies, jobs
that required a high-school degree, and jobs that required at most one year of work experience.
in the literature include the amount of time that the employers devote to inter
viewing and screening applicants (Barron, Berger, and Black 1997), the number
and sequence of recruitment channels the employers use in order to complete
their search successfully (Gorter and van Ommeren 1999), and the changes that
the employers make to the content of job ads that they post on online job boards
in order to attract the most suitable candidates to apply for their jobs (Brencic
and Norris 2010).
In this paper, we examined yet another aspect of employers' search: employers'
decision to post a wage offer in a description of a job opening. While this decision
has sparked much interest in the recent literature on the theory of search (e.g.,
Ellingsen and Rosen 2003; Michelacci and Suarez 2006), little empirical evidence
has thus far been gathered on the incidence, determinants, and consequences of
wage posting. Drawing on the data on labour markets in the US, the UK, and
Slovenia, we found that despite considerable differences in the incidence of wage
posting across the three markets, several common patterns emerged regarding
the determinants of the decision of employers to post a wage offer in their job
ads.
Most notably, our main finding - that wage posting is less common for posi
tions that require more skill - is consistent with the notion that employers face a
trade-off when posting a wage offer. The trade-off considered is between sending
a signal that ameliorates search frictions by directing job searchers' search and
the adverse selection. We find that the adverse selection and hence the trade-off is
more severe (a) in labour markets for skilled workers, (b) when posted wage offers
are not negotiable and therefore fully protect less productive workers against their
productivity disadvantage, and (c) when employers post a narrow wage range,
which makes it less likely that the wage is negotiated between the employer and
the new hire.
Overall, these are novel findings about how employers determine wages at the
very beginning of their search. In this respect, this paper's findings complement
recent evidence by Hall and Krueger (2010) on how wages are set at the time
of hiring. Importantly, despite differences in the types of data used (i.e., job
vacancies versus workers), the incidence and some of the determinants of wage
posting in the two studies are similar. That said, our analysis also reveals that
wage posting is more prevalent for entry-level jobs and for jobs that require fewer
skills or skills that are easier to observe. This observation suggests that search
models that stipulate that employers post wage offers are the most informative
of the segments of the labour market with these types of job position. We also
find that general announcements about the division of output are more prevalent
than announcements about the dollar amount associated with a wage offer and
are correlated with similar explanatory variables.
Several questions remain to be addressed. For example, our analysis revealed
that posted wage offers differ in the degree to which they can be negotiated; for
example, employers posted negotiable, non-negotiable, approximate, minimum,
and maximum wage offers. Future research could examine theoretically in more
detail the determinants of the range of a wage offer. It should also be noted that
we do not observe whether the actual starting wage differed from the wage offer
that employers posted in job ads at the beginning of their search. In our view,
data on the potential differences between posted wage offers and subsequent
starting wages would offer further valuable insights into the ways in which wages
are set.
Appendix
TABLE Ala
Summary statistics: a flow of job vacancies registered with the Employment Service of Slov
2001
Mean
NOTES: Observations with missing values were excluded in the calculation of sample means.
TABLE Alb
Description of variables: a flow of job vacancies registered with the Employment Service of Sl
in 2001
TABLE A2a
Summary statistics: a flow of filled job vacancies registered with the Lancashire Career Centre f
March 1988 to June 1992
Mean
TABLE A2b
Description of variables: a flow of filled job vacancies registered with the Lancashire Career Cent
from March 1988 to June 1992
TABLE A3a
Summary statistics: a flow of job vacancies posted on the Monster.com online job board f
26 to July 8 in 2006
Mean
NOTES: (i) Other variables included as controls: region and industry categories, (ii) Observations
with missing values were excluded in the calculation of the sample means.
TABLE A3b
Description of variables: a flow of job vacancies posted on the Monster.com online job board fro
26 June to 8 July in 2006
(Continued)
TABLE A3b
(Continued)
Required work experience Constructed from indicator variables that take the following values (a
in year mid-point was taken; value 17.5 was assigned if more than 15 years
of work experience is required): less than 1 year, 1-2 years, 2-5
years, 5-7 years, 7-10 years, 10-15 years, and 15+ years
1 if missing work No information about required work experience could be retrieved
experience from a job description
Required tasks/skills on 1 if communication skills required
thejob 1 if drive/motivated self-starter required
1 if creativity required
1 if analytical skills required
1 if independence on the job required
1 if team work on the job required
1 if multitasking required
1 if precision/quality control required
Training Train
1 if vacancy has to be Immediately, immediate consideration, immediate opening,
filled immediately immediate need, immediate position, immediate opportunity, has
immediate, have immediate, immediate office opportunity, asap, as
soon as possible, hurry
1 if multiple jobs Openings; positions
advertised in a posting
1 if opening posted by a Staffing agency, staffing firm, recruiter, if either one of the
recruitment agency well-known recruiting agencies was identified to have posted the
job: 'Adecco,' 'Manpower,' 'Kelly Services,' 'Ranstad,' 'Veritude,'
'Ardelle,' 'cdi corp,' 'kforce,' 'lucasgroup,' 'Management Recruiters
International,' 'mri,' 'Robert Walters,' 'anford rose,' 'snelling,'
'spherion,' 'winter, wyman,' 'Accountemps,' 'Robert Half,'
'OfficeTeam,' 'Allen and Associates,' 'TAC Worldwide'
1 if link to other job Other opportunity, click here to see all, view all of our, view all our.
opportunities posted on search for other
Monster.com
1 if link to firm's website Learn more about, visit our website, visit our web site, visit us, to
learn more, visit, to learn more visit
Length of a job A code was written to count the number of characters in each job
description description (in 1,000 characters)
NOTES: Each job posting was pulled from the Monster.com website and saved as a text file. For each
of these text files, the program identified whether a phrase (treated as a string) could be found in the
text and if so a corresponding dummy variable was set to 1. For words marked with a program
searched for the words as a 'stand-alone' string. Hence, an indicator variable records the presence of
the word in the job posting if it is preceded or succeeded by a symbol other than a letter.
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