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What’s in it for the firms? Living wage adoption as signal of ethical practice

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Listed:
  • Paul Schweinzer
  • Joanna K. Swaffield

Abstract

We analyse the effect of the voluntary adoption of a living wage on firms operating in product markets in which consumption behaviour is at least partly determined by reputational concerns for ethical firm behaviour. We show without recourse to morality or efficiency-wage theories that the adoption of a living wage policy may increase consumer welfare as well as producer surplus through the segmentation of a previously homogenous product market. In particular, we demonstrate that it may serve a firm’s profit maximisation interest to voluntarily adopt a living wage.

Suggested Citation

  • Paul Schweinzer & Joanna K. Swaffield, 2014. "What’s in it for the firms? Living wage adoption as signal of ethical practice," Discussion Papers 14/21, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:14/21
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    References listed on IDEAS

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    1. David Neumark & Matthew Thompson & Leslie Koyle, 2012. "The effects of living wage laws on low-wage workers and low-income families: What do we know now?," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-34, December.
    2. Donald R. Stabile, 2008. "The Living Wage," Books, Edward Elgar Publishing, number 13337.
    3. Sami Dakhlia & Paul Pecorino, 2006. "Rent-seeking with scarce talent: A model of preemptive hiring," Public Choice, Springer, vol. 129(3), pages 475-486, December.
    4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    5. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    6. Rowntree, Sebohm, 1921. "The Human Factor in Business," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number rowntree1921.
    7. David Neumark & Scott Adams, 2003. "Do Living Wage Ordinances Reduce Urban Poverty?," Journal of Human Resources, University of Wisconsin Press, vol. 38(3).
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    More about this item

    Keywords

    Living wage; Signalling; Reputation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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