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Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

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  • Arindrajit Dube
  • Laura Giuliano
  • Jonathan Leonard

Abstract

We analyze how separations responded to arbitrary differences in own and peer wages at a large U.S. retailer. Regression-discontinuity estimates imply large causal effects of own wages on separations, and on quits in particular. However, this own-wage response could reflect comparisons either to market wages or to peer wages. Estimates using peer-wage discontinuities show large peer-wage effects and imply the own-wage separation response mostly reflects peer comparisons. The peer effect is driven by comparisons with higher-paid peers—suggesting concerns about fairness. Separations appear fairly insensitive when raises are similar across peers—suggesting search frictions and monopsony are relevant in this low-wage sector.

Suggested Citation

  • Arindrajit Dube & Laura Giuliano & Jonathan Leonard, 2018. "Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior," NBER Working Papers 24906, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24906
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    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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