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Testing Fair Wage Theory

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Author Info
John D. Burger () (Department of Economics, Loyola College in Maryland)
Stephen J.K. Walters () (Department of Economics, Loyola College in Maryland)
Abstract

Fairness considerations often are invoked to explain wage differences that appear unrelated to worker characteristics or job conditions, but non-experimental tests of fair wage models are rare and weak because of the limits of available market-generated data. In particular, such data rarely permit researchers to (a) identify suitable reference points that employees and employers might use in determining what is fair and (b) control for employees’ marginal output and its value. This study utilizes a unique dataset from the baseball labor market that solves both problems. We find no support for fair wage theory in this market. We also find that fairness premia can be illusory: Wages appear to be adjusted upward for reasons of fairness in regressions that control for variation in individuals’ physical output, but such premia evaporate when the value of that output (which can be market- or firm-specific) is held constant. This suggests that avoiding proxy measures of workers’ marginal revenue products in wage studies might reduce the number of labor market "anomalies" economists must resolve.

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File URL: http://www.holycross.edu/departments/economics/RePEc/spe/BurgerWalters_FairWage.pdf
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Publisher Info
Paper provided by International Association of Sports Economists in its series Working Papers with number 0623.

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Length: 29 pages
Date of creation: Oct 2006
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Handle: RePEc:spe:wpaper:0623

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Related research
Keywords: fairness; efficiency wages; wage differentials;

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Find related papers by JEL classification:
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
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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