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Title: Labor Market Tightness, Wage Inequality and Workplace Amenities

Authors: Aniko Bıro, Joao G. da Fonseca, Attila Lindner, Tımea Laura Molnar

Abstract - Workplace-specific pay premiums and their dispersion rise with labor market tight-ness. We examine the role of compensating wage differentials in this relationship: as competition for labor intensifies, firms are compelled to offer higher pay for undesirable job attributes. Using administrative data from Hungary, we construct a novel measure of workplace-specific injury rates and study how workers are compensated for this negative attribute over the business cycle. We find that the wage premium associated with hazardous working conditions increases with market tightness, with compensation for workplace-specific injuries accounting for roughly 7% of the rise in wage dispersion. Nonetheless, despite offering higher wages, firms with poor amenities face increasing challenges in retaining workers in tight labor markets. We interpret these findings through the lens of a job search model with amenities, showing that while tighter labor markets can raise overall wage dispersion through compensating differentials, the dispersion in worker utilities across jobs declines.