Stark, Oded and Hyll, Walter (2011): On the economic architecture of the workplace: Repercussions of social comparisons among heterogeneous workers. Forthcoming in: Journal of Labor Economics , Vol. 29, No. 2 (2011)
Download (231kB) | Preview
We analyze the impact on a firm’s profits and optimal wage rates, and on the distribution of workers’ earnings, when workers compare their earnings with those of co-workers. We consider a low-productivity worker who receives lower wage earnings than a high-productivity worker. When the low-productivity worker derives (dis)utility not only from his own effort but also from comparing his earnings with those of the high-productivity worker, his response to the sensing of relative deprivation is to increase the optimal level of effort. Consequently, the firm’s profits are higher, its wage rates remain unchanged, and the distribution of earnings is compressed.
|Item Type:||MPRA Paper|
|Original Title:||On the economic architecture of the workplace: Repercussions of social comparisons among heterogeneous workers|
|Keywords:||Social comparisons; Heterogeneous workforce; Relative deprivation; Effort exertion; Earnings gap; Earnings compression|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J22 - Time Allocation and Labor Supply
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity
M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M54 - Labor Management
D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles
|Depositing User:||Oded Stark|
|Date Deposited:||04 Mar 2011 19:13|
|Last Modified:||28 Mar 2017 14:51|
Adams, Stacy J. 1963. Toward an understanding of inequity. Journal of Abnormal and Social Psychology 67, no. 5:422-36.
Akerlof, George A. 1982. Labor contracts as partial gift exchange. Quarterly Journal of Economics 97, no. 4:543-69.
Akerlof, George A., and Janet L. Yellen. 1990. The fair wage-effort hypothesis and unemployment. Quarterly Journal of Economics 105, no. 2:255-83.
Bandiera, Oriana, Iwan Barankay, and Imran Rasul. 2010. Social incentives in the workplace. Review of Economic Studies 77, no. 2:417-58.
Becker, Gary S. 1957. The economics of discrimination. Chicago: University of Chicago Press.
Bossert, Walter, and Conchita D’Ambrosio. 2006. Reference groups and individual deprivation: an axiomatic characterization of Yitzhaki’s index of individual deprivation. Economics Letters 90, no. 3:421-6.
Bull, Clive, Andrew Schotter, and Keith Weigelt. 1987. Tournaments and piece rates: an experimental study. Journal of Political Economy 95, no. 1:1-33.
Cabrales, Antonio, Antoni Calvó-Armengol, and Nicola Pavoni. 2008. Social preferences, skill segregation, and wage dynamics. Review of Economic Studies 75, no. 1:65-98.
Clark, Andrew E., Paul Frijters, and Michael A. Shields. 2008. Relative income, happiness, and utility: An explanation for the Easterlin Paradox and other puzzles. Journal of Economic Literature 46, no. 1:95-144.
Dur, Robert, and Amihai Glazer. 2008. Optimal contracts when a worker envies his boss. Journal of Law, Economics, and Organization 24, no. 1:120-37.
Ebert, Udo, and Patrick Moyes. 2000. An axiomatic characterization of Yitzhaki’s index of individual deprivation. Economics Letters 68, no. 3:263-70.
Falk, Armin, and Andrea Ichino. 2006. Clean evidence on peer effects. Journal of Labor Economics 24, no. 1:39-58.
Fan, Simon C., and Oded Stark. 2007. A social proximity explanation of the reluctance to assimilate. Kyklos 60, no. 1:55-63.
Fang, Hanming, and Giuseppe Moscarini. 2005. Morale hazard. Journal of Monetary Economics 52, no. 4:749-77.
Festinger, Leon. 1954. A theory of social comparison processes. Human Relations 7, no. 2:117-40.
Frank, Robert H. 1984a. Are workers paid their marginal products? American Economic Review 74, no. 4:549-71.
Frank, Robert H. 1984b. Interdependent preferences and the competitive wage structure. Rand Journal of Economics 15, no. 4:510-20.
Frank, Robert H. 1985. Choosing the right pond: Human behavior and the quest for status. New York: Oxford University Press.
Hamilton, Barton H., Jack A. Nickerson, and Hideo Owan. 2003. Team incentives and worker heterogeneity: An empirical analysis of the impact of teams on productivity and participation. Journal of Political Economy 111, no. 3:465-97.
Knight, John, Lina Song, and Ramani Gunatilaka. 2007. Subjective well-being and its determinants in Rural China. Economics Series Working Papers no. 334, University of Oxford.
Lazear, Edward P., and Sherwin Rosen. 1981. Rank-order tournaments as optimum labor contracts. Journal of Political Economy 89, no. 5:841-64.
Levine, David I. 1991. Cohesiveness, productivity and wage dispersion. Journal of Economic Behavior and Organization 15, no. 2:237-55.
Mas, Alexandre, and Enrico Moretti. 2009. Peers at work. American Economic Review 99, no.1:112-45.
Nickerson, Jack A., and Todd R. Zenger. 2008. Envy, comparison costs, and the economic theory of the firm. Strategic Management Journal 29, no. 13:1429-50.
Osterman, Paul. 2006. The wage effects of high performance work organization in manufacturing. Industrial and Labor Relations Review 59, no. 2:187-204.
Quinn, Michael A. 2006. Relative deprivation, wage differentials and Mexican migration. Review of Development Economics 10, no. 1:135-53.
Rosen, Sherwin. 1986. Prizes and incentives in elimination tournaments. American Economic Review 76 , no. 4:701-15.
Runciman, Walter G. 1966. Relative deprivation and social justice: A study of attitudes to social inequality in twentieth-century England. Berkeley: University of California Press.
Schelling, Thomas C. 1971. Dynamic models of segregation. Journal of Mathematical Sociology 1, no. 2:143-86.
Stark, Oded. 1984. Rural-to-urban migration in LDCs: A relative deprivation approach. Economic Development and Cultural Change 32 , no. 3:475-86.
Stark, Oded, Maja Micevska, and Jerzy Mycielski. 2009. Relative poverty as a determinant of migration: evidence from Poland. Economics Letters 103, no. 3:119-22.
Stark, Oded, and Edward J. Taylor. 1989. Relative deprivation and international migration. Demography 26, no. 1:1-14.
Stark, Oded, and Edward J. Taylor. 1991. Migration incentives, migration types: the role of relative deprivation. Economic Journal 101, no. 408:1163-78.
Stark, Oded, and You Qiang Wang. 2007. Towards a theory of self-segregation as a response to relative deprivation: steady-state outcomes and social welfare. In Economics and Happiness: Framing the Analysis, ed. Luigino Bruni and Pier Luigi Porta. Oxford: Oxford University Press.
Stark, Oded, and Shlomo Yitzhaki. 1988. Labour migration as a response to relative deprivation. Journal of Population Economics 1, no. 1:57-70.
Veblen, Thorstein. 1899. The Theory of the Leisure Class. Reprints of Economic Classics. New York: Augustus M. Kelley, 1965.
Yitzhaki, Shlomo. 1979. Relative deprivation and the Gini coefficient. Quarterly Journal of Economics 93, no. 2:321-4.