Information transparency, fairness and labor market efficiency

• We have two settings based on whether workers know firms’ productivity and surplus.
• Full information raises wages, workers’ performance and total surplus.
• Workers reciprocate more to a dollar increase in the full information setting.
• Workers consider firms’ surplus and increase effort more for low productivity jobs.
• Transparency may be desirable by both sides as it raises performance and payoffs.

We study the role of information transparency on fairness, welfare and efficiency in long-term employment relationships. When information on the firms’ productivity and surplus is revealed, wage offers represent larger shares of potential gains for workers who, in return, respond with higher performance. Workers respond not only to wages, but also to firms’ intentions concerning fairness. We find that, in long-term relationships, transparency is a strong mechanism to promote performance and welfare. It naturally improves relationships between firms and workers, increases workers’ welfare, profits from low productivity jobs and boosts the labor market efficiency.