Publications
Publications
- Forthcoming
- Review of Economic Studies
What's My Employee Worth? The Effects of Salary Benchmarking
By: Zoë B. Cullen, Shengwu Li and Ricardo Perez-Truglia
Abstract
While U.S. legislation prohibits employers from sharing information about their employees’
compensation with each other, companies are still allowed to acquire and use 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 payroll services and salary benchmarks. The evidence
suggests that salary benchmarking has a significant effect on pay setting and in a manner that is
consistent with the predictions of the model. Our findings have implications for the study of labor
markets and for ongoing policy debates.
Keywords
Citation
Cullen, Zoë B., Shengwu Li, and Ricardo Perez-Truglia. "What's My Employee Worth? The Effects of Salary Benchmarking." Review of Economic Studies (forthcoming).