Sydnee Caldwell

Firm Pay and Worker Search

Abstract:  Whether and how workers search on the job depends on their beliefs about pay and working
conditions in other firms. Yet little is known about workers’ knowledge of outside pay. We
use a large-scale survey of full-time German workers, linked to their Social Security records,
to elicit pay expectations and preferences over specific outside firms. Workers believe that
they face considerable heterogeneity in their outside pay options, and direct their search toward
firms they believe would pay them more. Workers’ expected firm-specific pay premia
are highly correlated with pay policies observed in administrative records and with workers’
valuations of firm-specific amenities. Most workers are unwilling to search for a new job—or
leave their current firm—even for substantial pay increases. Switching costs are equivalent to
40% of a worker’s annual pay. Attachment varies across firms, and cannot be explained by
either differences in firm-specific amenities or switching costs.