When Abundance Helps the Firm but Hurts Worker Power

The earlier results describe a vacancy that fills faster and a hire who stays longer when applicant supply rises. This chapter asks who receives the value of that improvement and who is allowed to enter the resulting match. The Austrian evidence follows two distributional margins: starting pay and the gender and nationality composition of hires. Together they show why a longer-lasting match can begin at a lower wage, and why a fuller applicant pool can make an existing workforce pattern more pronounced rather than more diverse.

A better match can still come with a lower starting wage

The wage result is the clearest test of whether “better hire” means “better deal for the worker.” One additional first-week observed application lowers the starting wage by about 0.45%. A one-standard-deviation increase in applications lowers starting wages by about 3.1%. These are local IV estimates tied to the applicant-supply changes created by nearby mass layoffs, not a claim that every additional résumé lowers every worker’s pay.

At first glance, the result seems inconsistent with the match story. If a deeper pool allows a firm to find a worker who fits the job better and stays longer, why would that worker be paid less? The answer lies in separating the value of the match from the way that value is divided. A more productive or durable match can create a larger surplus. But the employer’s outside option can grow even faster: with more applicants available, the firm can turn down the current candidate and continue searching with less fear that the vacancy will remain open.

The search model therefore contains two wage channels. The productivity channel pushes pay upward. A better match creates more value, and a worker who contributes more has more surplus to bargain over. The outside-option channel pushes pay downward. A firm that can replace the candidate more easily has less reason to concede a larger share of the surplus. The empirical wage estimate tells us which force dominates in the study’s setting: the negative bargaining effect outweighs the positive productivity effect on average.

This is not a claim that the worker becomes less valuable. It is a claim about bargaining power. The same change in applicant supply can improve the expected fit of the person hired while reducing the worker’s leverage at the moment the starting wage is set. The employer captures a larger share of the value created by the match. That is how a longer job duration and a lower starting wage can coexist without contradiction.

The wage distribution makes the institutional channel more visible. The effect is close to zero at the bottom of the distribution and grows toward roughly one percent per application above the median. Austria’s broad collective-bargaining coverage means that collectively agreed floors constrain how far employers can lower pay for workers near the bottom. Where the floor binds, an expanded applicant pool has little room to push the wage downward. Higher-paid workers have more discretionary pay, so the employer’s stronger outside option can show up more clearly there.

The distributional pattern is important for interpretation.