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On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers

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  • Oded Stark
  • Walter Hyll

Abstract

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 coworkers. 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.

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File URL: http://www.jstor.org/stable/full/10.1086/659104
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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 29 (2011)
Issue (Month): 2 ()
Pages: 349 - 375

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Handle: RePEc:ucp:jlabec:doi:10.1086/659104

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Web page: http://www.journals.uchicago.edu/JOLE/

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References

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  1. Antonio Cabrales & Antoni Calvo-Armengol & Nicola Pavoni, 2005. "Social Preferences, Skill Segregation, and Wage Dynamics," 2005 Meeting Papers 205, Society for Economic Dynamics.
  2. Alexandre Mas & Enrico Moretti, 2009. "Peers at Work," American Economic Review, American Economic Association, vol. 99(1), pages 112-45, March.
  3. Paul Osterman, 2006. "Wage effects of high performance work organization in manufacturing," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 59(2), pages 187-204, January.
  4. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1987. "Tournaments and Piece Rates: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 95(1), pages 1-33, February.
  5. Hanming Fang & Giuseppe Moscarini, 2003. "Morale Hazard," Cowles Foundation Discussion Papers 1422, Cowles Foundation for Research in Economics, Yale University.
  6. KNIGHT, John & SONG, Lina & GUNATILAKA, Ramani, 2009. "Subjective well-being and its determinants in rural China," China Economic Review, Elsevier, vol. 20(4), pages 635-649, December.
  7. Armin Falk & Andrea Ichino, 2004. "Clean Evidence on Peer Effects," Levine's Bibliography 666156000000000439, UCLA Department of Economics.
  8. Robert H. Frank, 1984. "Interdependent Preferences and the Competitive Wage Structure," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 510-520, Winter.
  9. Levine, David, 1989. "Cohesiveness, Productivity, and Wage Dispersion," Institute for Research on Labor and Employment, Working Paper Series qt8kd4d0p4, Institute of Industrial Relations, UC Berkeley.
  10. BOSSERT, Walter & D’AMBROSIO, Conchita, 2004. "Reference Groups and Individual Deprivation," Cahiers de recherche 13-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  11. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
  12. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  13. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
  14. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2010. "Social Incentives in the Workplace," Review of Economic Studies, Oxford University Press, vol. 77(2), pages 417-458.
  15. Stark, Oded & Micevska, Maja & Mycielski, Jerzy, 2009. "Relative poverty as a determinant of migration: Evidence from Poland," Economics Letters, Elsevier, vol. 103(3), pages 119-122, June.
  16. Fan, C. Simon & Stark, Oded, 2007. "A social proximity explanation of the reluctance to assimilate," MPRA Paper 30940, University Library of Munich, Germany.
  17. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  18. Stark, Oded & Yitzhaki, Shlomo, 1988. "Labour Migration as a Response to Relative Deprivation," MPRA Paper 21670, University Library of Munich, Germany.
  19. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  20. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  21. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  22. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  23. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  24. Stark, Oded, 1984. "Rural-to-Urban Migration in LDCs: A Relative Deprivation Approach," Economic Development and Cultural Change, University of Chicago Press, vol. 32(3), pages 475-86, April.
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Citations

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Cited by:
  1. Stark, Oded & Kobus, Martyna & Jakubek, Marcin, 2011. "A concern about low relative income, and the alignment of utilitarianism with egalitarianism," Discussion Papers 117257, University of Bonn, Center for Development Research (ZEF).
  2. Stark, Oded & Rendl, Franz & Jakubek, Marcin, 2011. "The merger of populations, the incidence of marriages, and aggregate unhappiness," University of Tuebingen Working Papers in Economics and Finance 10, University of Tuebingen, Faculty of Economics and Social Sciences.
  3. Stark, Oded, 2012. "Policy responses to a dark side of the integration of regions," University of Tuebingen Working Papers in Economics and Finance 28, University of Tuebingen, Faculty of Economics and Social Sciences.
  4. Sorger, Gerhard & Stark, Oded, 2012. "Income redistribution going awry: The reversal power of the concern for relative deprivation," Discussion Papers 142407, University of Bonn, Center for Development Research (ZEF).
  5. Stark, Oded & Jakubek, Marcin & Falniowski, Fryderyk, 2014. "Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare," Discussion Papers 162881, University of Bonn, Center for Development Research (ZEF).
  6. Stark, Oded, 2012. "Integration, social distress, and policy formation," Economics Letters, Elsevier, vol. 115(2), pages 318-321.
  7. Stark, Oded, 2012. "Policy responses to a dark side of the integration of regions and nations," Discussion Papers 122036, University of Bonn, Center for Development Research (ZEF).
  8. Stark, Oded, 2013. "Stressful integration," University of Tuebingen Working Papers in Economics and Finance 56, University of Tuebingen, Faculty of Economics and Social Sciences.

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