Ricardo Perez-Truglia, University of California, Berkeley
What’s My Employee Worth? The Effects of Salary Benchmarking
Abstract
While U.S. legislation prohibits employers from sharing information about their employees' compensation with each other, companies are still allowed to acquire and utilize more aggregated data provided by third parties. Most medium and large firms report using this type of data to set salaries, a practice that is known as salary benchmarking. Despite their widespread use across occupations, there is no evidence on the effects of salary benchmarking. We provide a model that explains why firms are interested in salary benchmarking and makes predictions regarding the effects of the tool. Next, we measure the actual effects of these tools using administrative data from one of the leading providers of salary benchmarks. The evidence suggests that salary benchmarking has a significant effect on pay setting and in a manner that is consistent with the theoretical predictions. Our findings have implications for the study of labor markets and for ongoing policy debates.
Ricardo Perez-Truglia is associate professor. His research interests include behavioral economics, political economy and public economics. He studies how social interactions and information frictions shape economic and political decisions and intends his research to inform policymakers in the developed and developing world, leading to practical applications
From June 2016 to June 2020, Ricardo Perez-Truglia was an assistant professor of economics in the Global Economics and Management group at UCLA Anderson (on leave). He received his Ph.D. in economics at Harvard University in 2014. His research interests include behavioral economics, political economy and public economics. He has published in premiere academic journals such as the American Economic Review and the Journal of Political Economy and his research is regularly featured in media outlets such as the New York Times, Wall Street Journal, The Economist and National Public Radio. In 2020, he was named a Sloan Research Fellow.
Contact: Claus Thustrup Kreiner