Diffusion of Wage Increases Across Distinct Labor Markets:

Social Comparison and Competitive Interactions

Daniel Olson

Local Labor Market Competition

2

Salt Lake City

Minneapolis

Memphis

?

?

MinneapolisSalt Lake City

Memphis

Research Question

Does labor market competition interact with internal multi-office firm processes to cause diffusion of wage increases across distinct labor markets?

3

?

Diffusion of Wage Increases

4

?MinneapolisSalt Lake City

Memphis

Social Comparison

CompetitionCompetition

Empirical Setting

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Ideal• No mobility across labor

markets• Local markets

• No firm-specific human capital• Full wage information

• State-bar requirements• State specific laws• Relationship-based

business• Similar training• Little prior experience• Vault, AmLaw,

abovethelaw.com, etc.

Feasible:Market for New Lawyers

6

Data

• US Census confidential micro-data– Quarterly wages for individuals– Mid-1990s to 2008– 30 US States and all industries– Office locations, wages, and employment for all states

• Martindale-Hubbell directory– Practice areas– Law school information

Research Design

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MinneapolisSalt Lake City

Memphis

Treatment

Control

Control

Treated

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t <= 0

t + 1

t + 2

0

Results

Social ComparisonCompetition

t - 3 t - 2 t - 1 t + 1 t + 2 t + 3

Future Work

• Is it social comparison?– Within firm similarities between offices and

markets

• Essay 2: Competitive responses of single-office versus multi-office firms

• Essay 3: Individual-level impact on mobility and entrepreneurship

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Contributions and Implications

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• Diffusion without threat of cross-market mobility• Wage pressures from unanticipated sources• Firm scope and life-cycle consequences

In salary wars, the competitors of your competitors are not your friends

EmployeeMobility

Employee Entrepreneurship

SocialComparison

Research Portfolio

11

Wage diffusion across disconnected labor markets

Wage changes and the mobility and

entrepreneurship of lawyers

Multi-office firms versus single-office firms

EmployeeMobility

Employee Entrepreneurship

SocialComparison

Research Portfolio

z12

How CSR reduces employee turnover (R&R at AMJ) with S. Carnahan &D. Kryscynski

Employee mobility and entrepreneurship: A virtual special issue (SMJ VSI Intro)

with R. Agarwal & A. Gambardella

Firm size effect or performance effect?

(data analysis) with R. Agarwal

Join or create competition? Market frictions, mobility, and entrepreneurship (data analysis) with R. Agarwal & B. Campbell

Social influence and competition between

critics (working paper)with D. Waguespack