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Social Preferences, Skill Segregation and Wage Dynamics

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  • Cabrales Goitia Antonio

    () (UNIVERSITY CARLOS III OF MADRID)

  • Calvó-Armengol Antoni

    () (UNIVERSITY CARLOS III OF MADRID)

  • Pavoni Nicola

    () (POMPEU FABRA UNIVERSITY AUTONOMOUS UNIVERSITY OF BARCELONA UNIVERSITY COLLEGE LONDON)

Abstract

We study the earning structure and the equilibrium assignment of workers to firms in a model where workers have social preferences and skills are perfectly substitutable in production. We allow firms to offer long-term contracts and for frictions in the labour market in the form of mobility costs. For low moving costs between firms, heterogeneous productivities lead to widespread workplace skill segregation and the whole market wage dispersion is explained by between firm differences. In a labor market with intermediate levels of mobility costs, segregation is more moderate and wage dispersion arises both within and across firms. For high levels of moving costs, the whole wage dispersion is within the firm and becomes zero when the moving costs are sufficiently high. We show that long-term contracts in the presence of social preferences associate within-firm wage dispersion with novel internal labor market features such as a dynamic form of wage compression, gradual promotions an dwage non-monotonicity.

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Bibliographic Info

Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201053.

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Length: 53
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:fbb:wpaper:201053

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Keywords: Contract theory; mechanism design; envy; social preferences; gradual promotions; dynamic wage structure.;

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  1. Pedro Rey-Biel, 2007. "Inequity Version and Team Incentives," UFAE and IAE Working Papers 677.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Legros, Patrick & Newman, Andrew, 2000. "Monotone Matching In Perfect And Imperfect Worlds," CEPR Discussion Papers 2396, C.E.P.R. Discussion Papers.
  3. 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.
  4. 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.
  5. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  6. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  7. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  8. Fershtman, C. & Weiss, Y. & Hvide, H.K., 2001. "Status Concerns and the Organization of Work," Papers 2001-2, Tel Aviv.
  9. 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.
  10. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  11. 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.
  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. 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 & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2010. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," American Economic Review, American Economic Association, vol. 100(5), pages 2261-78, December.
  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 & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona Graduate School of Economics.
  4. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism design and intentions," ECON - Working Papers 066, Department of Economics - University of Zurich, revised Aug 2012.
  5. Cabrales, Antonio & Antoni, Calvó-Armengol, . "Interdependent preferences and segregating equilibria," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3658, Universidad Carlos III de Madrid.
  6. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs, Spanish Economic Association, vol. 1(4), pages 371-386, September.
  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.

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