Advanced Search
MyIDEAS: Login to save this paper or follow this series

Do Co-Workers’ Wages Matter? Theory and Evidence on Wage Secrecy, Wage Compression and Effort

Contents:

Author Info

  • Charness, Gary

    ()
    (University of California, Santa Barbara)

  • Kuhn, Peter J.

    ()
    (University of California, Santa Barbara)

Abstract

We study worker and firm behavior in an environment where worker effort could depend on co-workers’ wages. Theoretically, we show that an increase in workers’ ‘concerns’ with coworkers’ wages should lead profit-maximizing firms to compress wages under quite general conditions. However, firms should be harmed by such concerns, and such concerns can justify paying equal wages to workers of unequal productivity only when those concerns are asymmetric (in the sense that only underpayment matters). Our laboratory experiments indicate that workers’ effort choices are highly sensitive to their own wages, but largely unresponsive to co-workers’ wages. Despite this, in apparent anticipation of a negative worker reaction, firms in our experiment were more likely to compress wages when wages became public information. Profits were not significantly reduced by a requirement to make wages public. Overall, our results seem to weaken the case that either wage secrecy or wage compression is a profit-maximizing policy in practice.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp1417.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1417.

as in new window
Length: 47 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1417

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: jealousy; social preferences; effort; experiments; wage compression; wage secrecy;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John Kagel & Katherine Wolfe, 2001. "Tests of Fairness Models Based on Equity Considerations in a Three-Person Ultimatum Game," Experimental Economics, Springer, vol. 4(3), pages 203-219, December.
  2. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  3. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(1), pages 106-134, February.
  4. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 255-83, May.
  5. Danziger, Leif & Katz, Eliakim, 1997. "Wage Secrecy as a Social Convention," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 35(1), pages 59-69, January.
  6. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 817-869, August.
  7. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 817-868, August.
  8. Harris, Milton & Holstrom, Bengt, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(3), pages 315-33, July.
  9. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  10. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  11. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S285-300, October.
  12. Babcock, Linda & Wang, Xianghong & Lowenstein, George, 1996. "Choosing the Wrong Pond: Social Comparisons in Negotiations That Reflect a Self-Serving Bias," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(1), pages 1-19, February.
  13. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(3), pages 561-80, June.
  14. Fehr, Ernst, et al, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(2), pages 324-51, April.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Dorothea Alewell & Andreas Nicklisch, 2006. "Wage Differentials, Fairness, and Social Comparison: An experimental study of the Co-Employment of Permanent and Temporary Agency Workers†," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_8, Max Planck Institute for Research on Collective Goods.
  2. Maximiano, Sandra & Sloof, Randolph & Sonnemans, Joep, 2013. "Gift exchange and the separation of ownership and control," Games and Economic Behavior, Elsevier, vol. 77(1), pages 41-60.
  3. Andrew Clark & David Masclet & Marie-Claire Villeval, 2006. "Effort, revenu et rang. Une étude expérimentale," Revue économique, Presses de Sciences-Po, vol. 57(3), pages 635-643.
  4. Andrew Clark & David Masclet & Marie-Claire Villeval, 2010. "Effort and comparison income: experimental and survey evidence," Post-Print halshs-00459777, HAL.
  5. Heike Hennig‐Schmidt & Abdolkarim Sadrieh & Bettina Rockenbach, 2010. "In Search of Workers' Real Effort Reciprocity—a Field and a Laboratory Experiment," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 817-837, 06.
  6. Teck-Hua Ho & Xuanming Su, 2009. "Peer-Induced Fairness in Games," American Economic Review, American Economic Association, vol. 99(5), pages 2022-49, December.
  7. Andrew Clark & David Masclet & Marie-Claire Villeval, 2006. "Effort and Comparison Income : Survey and Experimental Evidence," Post-Print halshs-00142880, HAL.
  8. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2004. "Gift Exchange in a Multi-worker Firm," Tinbergen Institute Discussion Papers 04-100/1, Tinbergen Institute.
  9. Wu, Steven & Roe, Brian & Sporleder, Thomas, 2006. "Mixed Tournaments, Common Shocks, and Disincentives: An Experimental Study," MPRA Paper 21, University Library of Munich, Germany.
  10. Cardoso, Ana Rute, 2005. "Big Fish in Small Pond or Small Fish in Big Pond? An Analysis of Job Mobility," IZA Discussion Papers 1900, Institute for the Study of Labor (IZA).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1417. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.