Within-firm wage-setting: occupation-specific versus across-the-board adjustments under rising tightness

Ascertain whether firms adjust wages differentially by occupation when occupation-specific labor market tightness increases, or instead raise wages uniformly across all employees regardless of whether their own occupation experienced a tightness increase, thereby distinguishing occupation-targeted wage adjustments from firm-wide wage-setting responses.

Background

The authors document pronounced wage increases in low-paying firms in response to rising labor market tightness and seek to understand the mechanism of firm-level wage setting. Specifically, they pose whether wage increases are targeted to occupations experiencing tighter labor markets or whether firms apply across-the-board increases that also benefit occupations without contemporaneous tightness changes.

They outline two empirical approaches to address this: (i) including firm-by-year fixed effects to capture within-firm differential responses across occupations, and (ii) estimating the effect of tightness on firm-level average wages, which would reveal across-the-board adjustments. The question motivates their subsequent analysis of wage-setting behavior at the firm level.