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Social Preferences, Skill Segregation, and Wage Dynamics

Author

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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. Firms offer long-term contracts, and we allow for frictions in the labour market in the form of mobility costs. The model delivers specific predictions about the nature of worker flows, about the characteristics of workplace skill segregation, and about wage dispersion both within and across firms. We show that long-term contracts in the presence of social preferences associate within-firm wage dispersion with novel "internal labour market" features such as gradual promotions, productivity-unrelated wage increases, and downward wage flexibility. These three dynamic features lead to productivity-unrelated wage volatility within firms. Copyright 2008, Wiley-Blackwell.
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Suggested Citation

  • Antonio Cabrales & Antoni Calvo-Armengol & Nicola Pavoni, 2005. "Social Preferences, Skill Segregation, and Wage Dynamics," 2005 Meeting Papers 205, Society for Economic Dynamics.
    • Handle: RePEc:red:sed005:205
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    2. Battisti, Michele, 2015. "Present-biased preferences and optimal compensation schedules: a note," MPRA Paper 64818, University Library of Munich, Germany.
    3. Raphaël Soubeyran, 2019. "Technology adoption and pro-social preferences," CEE-M Working Papers halshs-02291905, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    4. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    5. Walter Hyll, 2018. "Relative concerns at the workplace: on the design of the firm as a social space," Journal of Evolutionary Economics, Springer, vol. 28(2), pages 245-264, April.
    6. 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.
    7. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2010. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," American Economic Review, American Economic Association, vol. 100(5), pages 2261-2278, December.
    8. Fredrik Andersson & Mónica García-Pérez & John Haltiwanger & Kristin McCue & Seth Sanders, 2014. "Workplace Concentration of Immigrants," Demography, Springer;Population Association of America (PAA), vol. 51(6), pages 2281-2306, December.
    9. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 872-906.
    10. Amir Habibi, 2023. "Pay Transparency in Organizations," Rationality and Competition Discussion Paper Series 395, CRC TRR 190 Rationality and Competition.
    11. Cabrales, Antonio & Calvó-Armengol, Antoni, 2008. "Interdependent preferences and segregating equilibria," Journal of Economic Theory, Elsevier, vol. 139(1), pages 99-113, March.
    12. Juan Gabriel Rodríguez, 2015. "A Class of Social Welfare Functions That Depend on Mean Income and Income Polarization," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(3), pages 422-439, September.
    13. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona School of Economics.
    14. Alain Cohn & Ernst Fehr & Lorenz Goette, 2015. "Fair Wages and Effort Provision: Combining Evidence from a Choice Experiment and a Field Experiment," Management Science, INFORMS, vol. 61(8), pages 1777-1794, August.
    15. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(4), pages 371-386, September.
    16. Pedro Rey‐Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    17. 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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    More about this item

    Keywords

    Social Preferences; Skill Segregation; Internal Labor Market.;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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