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Social Preferences, Skill Segregation, and Wage Dynamics

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  • Antonio Cabrales
  • Antoni Calvo-Armengol
  • Nicola Pavoni

    ()
    (Department of Economics University College of London)

Abstract

We study the earning structure and the equilibrium assignment of workers to firms in a model in which workers have social preferences and skills are perfectly substitutable in production. We allow firms to offer long terms 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 firms 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 terms 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, and wage non-monotonicity.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 205.

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Date of creation: 2005
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Handle: RePEc:red:sed005:205

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Keywords: Social Preferences; Skill Segregation; Internal Labor Market.;

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References

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  1. Patrick Legros & Andrew F. Newman, 2002. "Monotone Matching in Perfect and Imperfect Worlds," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 925-942.
  2. 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.
  3. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  6. Pedro Rey Biel, 2004. "Inequity aversion and team incentives," Microeconomics 0407009, EconWPA.
  7. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. Thomas, Jonathan & Worrall, Tim, 1988. "Self-enforcing Wage Contracts," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 541-54, October.
  14. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
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Cited by:
  1. Monica I. Garcia-Perez & Fredrik Andersson & John Haltiwanger & Fredrik Kristin McCue & Seth Sanders, 2011. "Workplace Concentration of Immigrants," Working Papers 2011-20, Saint Cloud State University, Department of Economics.
  2. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona Graduate School of Economics.
  3. Antonio Cabrales & Antoni Calvo-Armengol, 2007. "Interdependent preferences and segregating equilibria," Economics Working Papers we072313, Universidad Carlos III, Departamento de Economía.
  4. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism Design and Intentions," Working Paper Series in Economics 53, University of Cologne, Department of Economics, revised 21 Aug 2012.
  5. Oded Stark & Walter Hyll, 2011. "On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers," Journal of Labor Economics, University of Chicago Press, vol. 29(2), pages 349 - 375.
  6. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs, Spanish Economic Association, vol. 1(4), pages 371-386, September.
  7. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2008. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," Discussion Papers 08-06, University of Copenhagen. Department of Economics.
  8. Alain Cohn & Ernst Fehr & Lorenz Goette, 2013. "Fair wages and effort provision: Combining evidence from the lab and the field," ECON - Working Papers 107, Department of Economics - University of Zurich.

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