Experimental evidence on the role of outside obligations in wage negotiations

Abstract

We examine how sharing information about outside obligations impacts wage negotiations. We consider an ‘employee’ with an outside obligation, whose performance determines the surplus and an ‘employer’ with the power-to-give, who determines the employee's wage. We find that wage offers increase with obligation amounts when the level of obligation is known. However, the employer simply redistributes surplus from employees with no obligations to those with higher obligations. We find no evidence of gender bias in wage offers, similar to other ultimatum games. Our experiment provides a potential explanation for some of the gender wage gap and shows how seemingly equitable policies may perpetuate inequities among employees.