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On the economic architecture of the workplace: repercussions of social comparisons amongst heterogeneous workers

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  • Hyll, Walter
  • Stark, Oded

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.

Suggested Citation

  • Hyll, Walter & Stark, Oded, 2011. "On the economic architecture of the workplace: repercussions of social comparisons amongst heterogeneous workers," University of Tübingen Working Papers in Business and Economics 6, University of Tuebingen, Faculty of Economics and Social Sciences, School of Business and Economics.
    • Handle: RePEc:zbw:tuewef:6
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Social comparisons; Heterogeneous workforce; Relative deprivation; Effort exertion; Earnings gap; Earnings compression;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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