Nonetheless, the living wage increase of 30% proposed to offset any power of employers have over wages is larger than any reasonable estimate of the gains to be split in employment relationships because of the costs of job search, recruitment and training that create a good job match. Manning (2011) estimated that about 5% of the value of the employment relationship is subject to bargaining:
Hiring costs play an important role in macroeconomic models based on imperfect competition in the labour market deriving from search.… the original Oi (1962) estimates seem in the right ballpark – with hiring costs a bit below 5% of the total labour costs. The bulk of these costs are the costs associated with training newly-hired workers and raising them to the productivity of an experience worker. The costs of recruiting activity are much smaller. We also have evidence of heterogeneity in hiring costs, both across worker characteristics (the hiring costs of more skilled workers typically being higher), and employer characteristics (the hiring costs of large employers typically being higher) (Manning 2011). There are other estimates of the split from a good job match (Manning 2011) but none are as large as the proposed living wage increases at home (30%) nor abroad (100%). The surplus from a good job match “while not trivial” are “not enormous” so even the most “artfully chosen” minimum wage rise to even up the split still must be modest (Manning 2011). To quote Manning yet again:
There are rents in the typical job. This should not be a controversial claim – workers care when they lose or get jobs, employers care when workers leave. There is more doubt about the size and distribution of those rents. A very rough benchmark might put them in the region 15-30% of the wage, with a best guess being that most of them go to the worker (Manning 2011). Experienced workers earn 15-30% less in their next job if unexpectedly laid off because their firm-specific and industry-specific human capital can be lost (Topel 1990; Manning 2011). Profits and rates of return on all capital invested in firms are never near these magnitudes (Stigler 1963, 1976). If the deal was lopsided instead in favour of employers, firms would invest heavily in recruitment because hiring another worker is so profitable, but they do not; hiring costs are about 5% of wages, and recruitment efforts and costs are keep to a minimum for the lowest-paid (Manning 2011).
8.9 How Much Market Power Do Employers Have And Over Whom? The only labour markets with any significant evidence of a power of employers to keep wages down by the more than even a few percentage points are professional sports and professors (Boal and Ransom 1997, 2002; Ashenfelter, Farber and Ransom 2010; Hirsch 2008; Hirsch and Schumacher 2005). These professionals have few alternatives for their specialised skills. They invest up-front in skills demanded by one sport or one or two universities per city. It is in higher skilled markets where employers might take advantage of the more limited mobility of specialised human capital. By contrast, the low-paid search in thick job markets because they can apply for most any unskilled vacancy in any industry that is albeit within their commuting radius (Hutt 1973; Alchian and Allen 1967, 1983; Manning and Petrongolo 2011). The higher skilled search in markets much thinner in near-by vacancies that open regularly which are wellmatched to their idiosyncratic backgrounds (Lazear 2009; Fishback 1998; Manning 2006, 2011). The main hiring criteria for low-skilled vacancies is that the successful recruits be friendly and reliable (Osterman 2001). Little of their human capital is specialised and whose value depends on staying with one employer for a length of time. Activists do not give employers their due for seeing entrepreneurial gain in tying their own hands to prevent opportunistic behaviour towards employees of all pay grades. Employers and the employee to accumulate
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