Asymmetric Information in Wage Negotiations: Hockey's Natural Experiment

This research develops a model of wage negotiation and tests several implications for wages when information asymmetries that favor employers are reduced. The model predicts that given sufficient time to adjust: 1) wages, and labor’s share of the distribution of earnings, will increase; 2) labor’s job performance will become a more important determinant of wages; and 3) the personalities of wage negotiators will become less important. The empirical setting is professional hockey. Beginning in 1989 the National Hockey League Players’ Association began annually to reveal the salaries of all its members. Over the next five seasons as contracts were renegotiated wages rose precipitously. Over the same period the role of player performance in determining wages gained importance while the identity of the team with which they negotiated lost all significance.