Wage Differentials, Fairness, and Social Comparison: An experimental study of the Co-Employment of Permanent and Temporary Agency Workers†
AbstractRecent experimental literature in labor economics shows that fairness concerns make a substantial difference for working decisions. Our study systematically explores how the existence of multiple fairness foci influences wage setting and acceptance thresholds. Particularly, we focus on the effect of horizontal fairness concerns, i.e., the wage comparison among employees. For our experiment, we use an institutional design of wage negotiations among employers, employees and temporary agency workers. Working agencies hire these workers and rent them out to firms. Thereby, we create a heterogeneous background of the labour force. Although temporary agency workers do the same work, typically, they receive lower wages due to the intermediate agency. The results of our laboratory experiments indicate that the availability of information concerning co-employee’s wage offers strongly influences the wage set and participants’ acceptance of contracts. Whereas the relation of average wages is not influenced by the order of the decisions, the absolute level of wages is dependent on the decisions. We find that temporary agency workers who decide on a wage offer after permanent employees receive a premium in addition to their wages, while permanent employees take a cut in wages if they get their wage offer after temporary workers have decided on their offers. These results are more influenced by self-regarding social comparison preferences than by other-regarding horizontal fairness concerns.
Download InfoIf 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.
Bibliographic InfoPaper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2006_8.
Length: 29 pages
Date of creation: Mar 2006
Date of revision:
Experimental economics; horizontal fairness norms; labour economics; social preferences; vertical fairness norms;
Find related papers by JEL classification:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- M12 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Personnel Management; Executives; Executive Compensation
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
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.:
- Fehr, Ernst & Schmidt, Klaus M., .
"A theory of fairness, competition, and cooperation,"
Chapters in Economics,
University of Munich, Department of Economics.
- Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
- Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
- Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
- Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
- Konow, James, 2001. "Fair and square: the four sides of distributive justice," Journal of Economic Behavior & Organization, Elsevier, vol. 46(2), pages 137-164, October.
- Huck, Steffen & Muller, Wieland, 2000.
"Perfect versus Imperfect Observability--An Experimental Test of Bagwell's Result,"
Games and Economic Behavior,
Elsevier, vol. 31(2), pages 174-190, May.
- Steffen Huck & Wieland Mueller, 1998. "Perfect versus imperfect observability---An experimental test of Bagwell's result," Experimental 9804001, EconWPA.
- James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1188-1239, December.
- M. Rabin, 2001.
"Incorporating Fairness into Game Theory and Economics,"
Levine's Working Paper Archive
511, David K. Levine.
- Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
- Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
- Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
- Charness, Gary & Kuhn, Peter J., 2004. "Do Co-Workers’ Wages Matter? Theory and Evidence on Wage Secrecy, Wage Compression and Effort," IZA Discussion Papers 1417, Institute for the Study of Labor (IZA).
- James Konow, 2001.
"A Positive Theory of Economic Fairness,"
Levine's Working Paper Archive
563824000000000138, David K. Levine.
- 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, vol. 111(1), pages 1-19, February.
- Bagwell, Kyle, 1995.
"Commitment and observability in games,"
Games and Economic Behavior,
Elsevier, vol. 8(2), pages 271-280.
- Knez Marc J. & Camerer Colin F., 1995. "Outside Options and Social Comparison in Three-Player Ultimatum Game Experiments," Games and Economic Behavior, Elsevier, vol. 10(1), pages 65-94, July.
- 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.
- James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September.
- Guth, Werner & Tietz, Reinhard, 1990. "Ultimatum bargaining behavior : A survey and comparison of experimental results," Journal of Economic Psychology, Elsevier, vol. 11(3), pages 417-449, September.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marc Martin).
If references are entirely missing, you can add them using this form.