Why employers ask for expected salary

When interviewing for a job, one question you probably dread is: “What salary are you looking for?”

You probably feel the employer is taking advantage of you, but there are economic principles underlying this practice.

To understand why, we can begin by noting this actually represents a violation of a general principle in economics known as “first-mover advantage”.

In adversarial settings where the participants take turns to choose an action, in general, it is preferable to be the first person to act. A familiar example is the game of chess, where playing as white – and hence moving first – is advantageous.

The reason for the prevalence of first-mover advantage is that by moving first, you can usually ensure that the interaction goes in a direction that favours your interests by eliminating certain options available to your adversary. Children see this in games of “X-O”, whereas adults experience it when a group of co-workers are negotiating over days off.

First-mover advantage also reflects the fact that taking the initiative can force your opponent into a defensive posture, whereby they are always responding to your choices rather than exerting their own influence. Sports such as tennis illustrate this clearly.

First-mover advantage is not a universal phenomenon, however, as in certain settings it is advantageous to let others act first. One of the key factors that leads to a breakdown in first-mover advantage is uncertainty among adversaries about one another’s abilities or available moves.

Under these circumstances, the first mover’s choices tacitly convey strategically valuable information to their opponents. Card games such as poker fall into this category. Observing how others play before you helps you deduce the cards that they are concealing, and often this benefit outweighs the traditional benefits of moving first.

In employer-employee negotiations, is it better to move first or second? One feature of human psychology that makes moving first more favourable in negotiations is anchoring bias.

Humans irrationally fixate on the first figure that is proposed, using it as a benchmark. This happens because the human brain has limits to its power and is designed to use shortcuts to economise on effort.

Fixating on recently related information, such as the first proposal in a negotiation, is one such shortcut and skilful negotiators aware of this flaw in the human brain can use that knowledge to their advantage.

Shrinking-pie negotiations – those where the prize the employer and employee are bargaining over shrinks the longer they take to reach an agreement – also tend to result in first-mover advantage, as the second mover may favour accepting the first mover’s offer rather than incurring the cost of delaying while they formulate their own counter-offer.

Trade union members who go on strike illustrate this principle. During negotiations, as long as the strike is going on, both the employer and employee are losing money. Since making a proposal takes time, it also costs money, and so whoever gets to make the first proposal may be able to secure a better deal by exploiting the other side’s desire to avoid further delay.

Asking an interviewee for their salary expectations reflects a belief in the presence of a second-mover advantage – so what underlies the violation of the general principle of first-mover advantage? Like card games, the key is the hidden, strategically valuable information that each side is trying to tease out of the other.

Employers have a maximum wage they are willing to offer and they hope that the employee will accept something much lower. In contrast, employees have a minimum wage they are willing to accept and hope that the employer will accept something much higher. Each side wants to keep its own cut-off wage secret and wants to know the other side’s cut-off wage.

When either side makes a wage offer, it is forced to reveal something about its own cut-off. For example, we know that an employer will never offer more than its maximum, so whatever it offers the employee can use as a minimum from which to ask for more. Knowing this, why doesn’t the employer simply make a really low offer? Because there is a risk of the employee breaking negotiations off if they are insulted.

If the employee had to move first, they would be concerned about stating a figure that is too high because they are unaware of the employer’s cut-off and so will tend to lower their demands. This is why employers prefer that you move first – it is a way of ensuring a lower wage.

Is there anything you can do about this? Usually employers can force you to move first, because labour markets tend to be skewed in their favour, especially when there is significant unemployment.

That means your best option is gathering whatever information you can about the employer’s cut-off, such as by talking to current and former employees. This helps to eliminate the second-mover advantage, so that you can get the best deal possible.

Employers can force you to move first, because labour markets tend to be skewed in their favour