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Testing Fair Wage Theory

Author

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  • John Burger
  • Stephen Walters

Abstract

Fairness considerations often are invoked to explain wage differences that appear unrelated to worker characteristics or job conditions, but non-experimental tests of fair wage models are rare and weak because of the limits of available market-generated data. In particular, such data rarely permit researchers to (a) identify suitable reference points that employees and employers might use in determining what is fair and (b) control for employees’ marginal output and its value. This study utilizes a unique dataset from the baseball labor market that solves both problems. We find no support for fair wage theory in this market. We also find that fairness premia can be illusory: Wages appear to be adjusted upward for reasons of fairness in regressions that control for variation in individuals’ physical output, but such premia evaporate when the value of that output (which can be market- or firm-specific) is held constant. This suggests that avoiding proxy measures of workers’ marginal revenue products in wage studies might reduce the number of labor market "anomalies" economists must resolve.
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Suggested Citation

  • John Burger & Stephen Walters, 2008. "Testing Fair Wage Theory," Journal of Labor Research, Springer, vol. 29(4), pages 318-332, December.
    • Handle: RePEc:spr:jlabre:v:29:y:2008:i:4:p:318-332
    DOI: 10.1007/s12122-007-9044-8
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    • John D. Burger & Stephen J.K. Walters, 2006. "Testing Fair Wage Theory," Working Papers 0623, International Association of Sports Economists;North American Association of Sports Economists.

    References listed on IDEAS

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    Cited by:

    1. Rodney Fort & Young Hoon Lee & Taeyeon Oh, 2019. "Quantile Insights on Market Structure and Worker Salaries: The Case of Major League Baseball," Journal of Sports Economics, , vol. 20(8), pages 1066-1087, December.
    2. Aaron D. Hill & Federico Aime & Jason W. Ridge, 2017. "The performance implications of resource and pay dispersion: The case of Major League Baseball," Strategic Management Journal, Wiley Blackwell, vol. 38(9), pages 1935-1947, September.
    3. Tao, Hung-Lin, 2015. "Multiple earnings comparisons and subjective earnings fairness: A cross-country study," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 45-54.

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    More about this item

    Keywords

    Fairness; Efficiency wages; Wage differentials;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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