Working Papers

Wage effects of labor market tightness

I study the impact of labor market tightness on wages. Using Danish data on vacancies and unemployment at the occupational level and firm-level data on the occupational composition of employees, I construct novel firm-specific measures of labor market tightness. Using these measures, I estimate the causal impact of labor market tightness on wages at the firm level. I find a positive effect on wages in response to changes in tightness. The results are in line with the qualitative implications of the canonical search and matching model of the labor market. (Draft available here)
^{- Media Coverage: SUERF Policy Brief}

Work in progress

Firm Beliefs About Wage Setting

-with Antoine Bertheau

Who set your wage? A growing consensus is that firms have some wage setting power. Yet, little is known about how firms perceive their wage-setting power. This paper yields new insights on two questions: Can firms assess their relative position on the wage distribution? Why do some firms offer higher or lower wages? We measure firms’ beliefs about wages using a sample of 2,600 Danish firms and compare these beliefs with the actual wage paid from administrative labor market data. Firms have precise knowledge of their position on the wage distribution when declaring to set higher or lower wages than other firms. However, a majority who believe to pay as much as others actually pay higher or lower wages. Firms with inaccurate beliefs behave differently. They are less likely to cut wages instead of laying off if they underestimate their wages. We derive a new classical monopsony model with inaccurate beliefs to guide our empirical analysis. We show that firm-specific wage deviates more from the optimal wage depending on the extent of competition for labor market services. The most common reason to offer high wages is to retain and attract new employees. Efficiency wage and rent-sharing motives come next. Compensating for negative job characteristics is the least common reason to set high wages.