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On the economic architecture of the workplace: Repercussions of social comparisons among heterogeneous workers

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  • Stark, Oded
  • Hyll, Walter

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 co-workers. 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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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28910.

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Date of creation: 2011
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Handle: RePEc:pra:mprapa:28910

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Keywords: Social comparisons; Heterogeneous workforce; Relative deprivation; Effort exertion; Earnings gap; Earnings compression;

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References

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  1. 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.
  2. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  3. 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.
  4. Sherwin Rosen, 1985. "Prizes and Incentives in Elimination Tournaments," NBER Working Papers 1668, National Bureau of Economic Research, Inc.
  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. 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.
  7. Antonio Cabrales & Antoni Calv�-Armengol & Nicola Pavoni, 2008. "Social Preferences, Skill Segregation, and Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 65-98.
  8. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
  9. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(2), pages 321-24, May.
  10. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers, C.V. Starr Center for Applied Economics, New York University 85-21, C.V. Starr Center for Applied Economics, New York University.
  11. BOSSERT, Walter & D'AMBROSIO, Conchita, 2004. "Reference Groups and Individual Deprivation," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2004-10, Universite de Montreal, Departement de sciences economiques.
  12. Alexandre Mas & Enrico Moretti, 2009. "Peers at Work," American Economic Review, American Economic Association, vol. 99(1), pages 112-45, March.
  13. Fan, C. Simon & Stark, Oded, 2007. "A social proximity explanation of the reluctance to assimilate," MPRA Paper 30940, University Library of Munich, Germany.
  14. Hanming Fang & Giuseppe Moscarini, 2004. "Morale Hazard," Yale School of Management Working Papers, Yale School of Management ysm386, Yale School of Management.
  15. Levine, David, 1989. "Cohesiveness, Productivity, and Wage Dispersion," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt8kd4d0p4, Institute of Industrial Relations, UC Berkeley.
  16. 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.
  17. John Knight & Lina Song, 2007. "Subjective Well-being and its Determinants in Rural China," Economics Series Working Papers 334, University of Oxford, Department of Economics.
  18. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 24(1), pages 120-137, May.
  19. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  20. Armin Falk & Andrea Ichino, 2004. "Clean Evidence on Peer Effects," Levine's Bibliography 666156000000000439, UCLA Department of Economics.
  21. 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, University of Chicago Press, vol. 111(3), pages 465-497, June.
  22. 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.
  23. Stark, Oded & Yitzhaki, Shlomo, 1988. "Labour Migration as a Response to Relative Deprivation," MPRA Paper 21670, University Library of Munich, Germany.
  24. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
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Citations

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Cited by:
  1. Stark, Oded & Rendl, Franz & Jakubek, Marcin, 2011. "The merger of populations, the incidence of marriages, and aggregate unhappiness," Discussion Papers 109968, University of Bonn, Center for Development Research (ZEF).
  2. 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).
  3. Stark, Oded, 2013. "Stressful Integration," European Economic Review, Elsevier, vol. 63(C), pages 1-9.
  4. 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).
  5. 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.
  6. 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).
  7. Dohmen, Thomas, 2014. "Behavioural Labour Economics: Advances and Future Directions," IZA Discussion Papers 8263, Institute for the Study of Labor (IZA).
  8. Stark, Oded & Kobus, Martyna & Jakubek, Marcin, 2012. "A concern about low relative income, and the alignment of utilitarianism with egalitarianism," Economics Letters, Elsevier, vol. 114(3), pages 235-238.
  9. Stark, Oded, 2012. "Integration, social distress, and policy formation," Discussion Papers 120179, University of Bonn, Center for Development Research (ZEF).

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