Wage bargaining is an important, yet unavailable, tool for many U.S. workers to increase their incomes
Understanding the various ways in which wages are set in the U.S. economy is crucial to analyzing economic activity and worker well-being. Phenomena such as wage and earnings growth, worker mobility, income inequality, and the underlying causes of unemployment all relate back to wage setting and workers’ ability to push for higher pay or better working conditions.
Wages in the United States are typically set either through wage bargaining or wage posting. The former occurs when workers have the ability to negotiate their own compensation, and wages thus respond to workers’ outside options—their ability to find alternative employment. The latter, wage posting, arises when employers set wages that employees must either accept or reject, without holding influence over how much they are paid.
Little evidence exists on the extent to which workers have bargaining power and outside options that could affect their wages. But our new working paper seeks to expand the evidence by looking at dual jobholders—workers who take a second job because the available hours at their primary job (which typically has better wages) are limited by the employer. On average, dual jobholders rely on their secondary jobs for about 20 percent of their total earnings.
Using employer-employee linked administrative data on wages from Washington state’s Unemployment Insurance system, we analyze data on wage changes for a worker’s colleagues at their secondary jobs, or the job in which they work fewer hours. In particular, we estimate how workers’ wages and hours change at their primary jobs—as well as whether these workers quit their primary jobs—in response to wage increases at their secondary jobs.
We find that the relationship between changes in the wages of co-workers in a secondary job and changes in the worker’s wages at the primary job differ for worker in different parts of the wage distribution. Wage bargaining does play a role in setting workers’ wages but only in the top quartile of the wage distribution. For workers in the lowest quartile, wage posting appears to be the dominant method of wage setting.
The difference between wage setting in the top quartile of the wage distribution and lower in the distribution can be attributed to the greater economic surplus generated by high-wage workers. The gap between the value produced by high-wage workers and what they are paid—the surplus—is greater for high-wage than for low-wage workers largely because they are difficult to replace. The high costs of recruiting, hiring, and training high-wage workers create an incentive for employers to raise their wages rather than potentially losing them.
In contrast, workers in the lowest quartile of the wage distribution are more likely to quit their primary jobs in response to higher pay in their secondary jobs, consistent with a lack of bargaining power. This is likely because employers can more easily replace low-wage workers.
In short, high-wage workers are able to increase their earnings through wage bargaining at their primary jobs, whereas low-wage workers need to change jobs to increase their pay.
Our study also examines single jobholders, finding that these workers, on average, earn higher hourly wages than dual jobholders at either their primary or secondary jobs. The work hours of single jobholders tend to be more than the work hours of dual jobholders at their primary jobs, although the total work hours of dual jobholders exceed the total work hours of single jobholders.
We also find that dual jobholders more often work with other dual jobholders. Only 5 percent of single jobholders’ colleagues have secondary jobs, while 9 percent of dual jobholders’ colleagues in their primary jobs and 48 percent of their colleagues in their secondary jobs have two jobs.
February 1, 2018
In light of the rise in U.S. gig employment in recent years, it is important to note that the secondary jobs held by dual jobholders in our study are not informal, app-based, or contract-based occupations. Because we use data from Washington’s Unemployment Insurance system, and because gig workers are not eligible for UI benefits in most cases, we look at dual jobholders with second jobs that have more flexible hours, but who are still classified as employees by both of their employers.
The findings in this paper are closely linked to our related research on growing wage inequality in Washington since 2002. In “Do Firm Effects Drift? Evidence from Washington Administrative Data,” we find increasing wages in the top quartile of the wage distribution are responsible for most of that growing inequality. We also find that the skills possessed by high-wage workers have been rewarded with increasing wage premiums, and that high-wage workers have sorted increasingly to high-wage employers. The ability of high-wage workers to negotiate still-higher wages can be viewed as an outcome of the increased value employers have placed on workers’ skills in the U.S. labor market.