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Social Preferences, Skill Segregation, and Wage Dynamics

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  • Antonio Cabrales
  • Antoni Calv�-Armengol
  • Nicola Pavoni

Abstract

We study the earning structure and the equilibrium assignment of workers to firms in a model in which workers have social preferences, and skills are perfectly substitutable in production. Firms offer long-term contracts, and we allow for frictions in the labour market in the form of mobility costs. The model delivers specific predictions about the nature of worker flows, about the characteristics of workplace skill segregation, and about wage dispersion both within and across firms. We show that long-term contracts in the presence of social preferences associate within-firm wage dispersion with novel "internal labour market" features such as gradual promotions, productivity-unrelated wage increases, and downward wage flexibility. These three dynamic features lead to productivity-unrelated wage volatility within firms. Copyright 2008, Wiley-Blackwell.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 75 (2008)
Issue (Month): 1 ()
Pages: 65-98

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Handle: RePEc:oup:restud:v:75:y:2008:i:1:p:65-98

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  1. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  2. Pedro Rey-Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, 06.
  3. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  4. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  5. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  6. Patrick Legros & Andrew Newman, 2002. "Monotone matching in perfect and imperfect worlds," ULB Institutional Repository 2013/7032, ULB -- Universite Libre de Bruxelles.
  7. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  8. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-33, February.
  9. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
  10. Hibbs, Douglas A, Jr & Locking, Hakan, 2000. "Wage Dispersion and Productive Efficiency: Evidence for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 755-82, October.
  11. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, 05.
  12. Patrick Legros & Andrew Newman, 2007. "Beauty is a beast, frog is a prince: assortative matching in a nontransferable world," ULB Institutional Repository 2013/7022, ULB -- Universite Libre de Bruxelles.
  13. Fershtman, C. & Weiss, Y. & Hvide, H.K., 2001. "Status Concerns and the Organization of Work," Papers 2001-2, Tel Aviv.
  14. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
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Cited by:
  1. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs, Spanish Economic Association, vol. 1(4), pages 371-386, September.
  2. Fredrik Andersson & Monica Garcia-Perez & John Haltiwanger & Kristin McCue & Seth Sanders, 2010. "Workplace Concentration of Immigrants," Working Papers 10-39r, Center for Economic Studies, U.S. Census Bureau, revised Nov 2011.
  3. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2008. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," Discussion Papers 08-06, University of Copenhagen. Department of Economics.
  4. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona Graduate School of Economics.
  5. Cabrales, Antonio & Calvó-Armengol, Antoni, 2008. "Interdependent preferences and segregating equilibria," Journal of Economic Theory, Elsevier, vol. 139(1), pages 99-113, March.
  6. Alain Cohn & Ernst Fehr & Lorenz Goette, 2013. "Fair wages and effort provision: Combining evidence from the lab and the field," ECON - Working Papers 107, Department of Economics - University of Zurich.
  7. Stark, Oded & Hyll, Walter, 2011. "On the economic architecture of the workplace: Repercussions of social comparisons among heterogeneous workers," MPRA Paper 28910, University Library of Munich, Germany.
  8. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism design and intentions," ECON - Working Papers 066, Department of Economics - University of Zurich, revised Apr 2014.

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