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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. --

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Bibliographic Info

Paper provided by University of Tuebingen, Faculty of Economics and Social Sciences in its series University of Tuebingen Working Papers in Economics and Finance with number 6.

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Date of creation: 2011
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Handle: RePEc:zbw:tuewef:6

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Keywords: Social comparisons; Heterogeneous workforce; Relative deprivation; Effort exertion; Earnings gap; Earnings compression;

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References

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  1. Fan, C. Simon & Stark, Oded, 2007. "A social proximity explanation of the reluctance to assimilate," MPRA Paper 30940, University Library of Munich, Germany.
  2. Hanming Fang & Giuseppe Moscarini, 2003. "Morale Hazard," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1422, Cowles Foundation for Research in Economics, Yale University.
  3. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, American Economic Association, vol. 74(4), pages 549-71, September.
  4. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, American Economic Association, vol. 59(2), pages 488-93, May.
  5. Paul Osterman, 2006. "Wage effects of high performance work organization in manufacturing," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 59(2), pages 187-204, January.
  6. Mas, Alexandre & Moretti, Enrico, 2006. "Peers at Work," IZA Discussion Papers 2292, Institute for the Study of Labor (IZA).
  7. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers, C.V. Starr Center for Applied Economics, New York University 85-21, C.V. Starr Center for Applied Economics, New York University.
  8. Levine, David I., 1991. "Cohesiveness, productivity, and wage dispersion," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 15(2), pages 237-255, March.
  9. Antonio Cabrales & Antoni Calvo-Armengol & Nicola Pavoni, 2005. "Social Preferences, Skill Segregation, and Wage Dynamics," 2005 Meeting Papers, Society for Economic Dynamics 205, Society for Economic Dynamics.
  10. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(2), pages 321-24, May.
  11. Armin Falk & Andrea Ichino, 2004. "Clean Evidence on Peer Effects," Levine's Bibliography 666156000000000439, UCLA Department of Economics.
  12. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 24(1), pages 120-137, May.
  13. Stark, Oded & Yitzhaki, Shlomo, 1988. "Labour Migration as a Response to Relative Deprivation," MPRA Paper 21670, University Library of Munich, Germany.
  14. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  15. Bossert, Walter & D'Ambrosio, Conchita, 2006. "Reference groups and individual deprivation," Economics Letters, Elsevier, Elsevier, vol. 90(3), pages 421-426, March.
  16. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 841-64, October.
  17. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, American Economic Association, vol. 76(4), pages 701-15, September.
  18. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(3), pages 465-497, June.
  19. Stark, Oded, 1984. "Rural-to-Urban Migration in LDCs: A Relative Deprivation Approach," Economic Development and Cultural Change, University of Chicago Press, vol. 32(3), pages 475-86, April.
  20. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(4), pages 543-69, November.
  21. John Knight & Lina Song, 2007. "Subjective Well-being and its Determinants in Rural China," Economics Series Working Papers 334, University of Oxford, Department of Economics.
  22. Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2009. "Social Incentives in the Workplace," IZA Discussion Papers 4190, Institute for the Study of Labor (IZA).
  23. Robert H. Frank, 1984. "Interdependent Preferences and the Competitive Wage Structure," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 510-520, Winter.
  24. Stark, Oded & Micevska, Maja & Mycielski, Jerzy, 2009. "Relative poverty as a determinant of migration: Evidence from Poland," Economics Letters, Elsevier, Elsevier, vol. 103(3), pages 119-122, June.
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Citations

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Cited by:
  1. Stark, Oded & Jakubek, Marcin & Falniowski, Fryderyk, 2014. "Reconciling the Rawlsian and the utilitarian approaches to the maximization of social welfare," Economics Letters, Elsevier, Elsevier, vol. 122(3), pages 439-444.
  2. Stark, Oded & Kobus, Martyna & Jakubek, Marcin, 2012. "A concern about low relative income, and the alignment of utilitarianism with egalitarianism," Economics Letters, Elsevier, Elsevier, vol. 114(3), pages 235-238.
  3. Dohmen, Thomas, 2014. "Behavioural Labour Economics: Advances and Future Directions," IZA Discussion Papers 8263, Institute for the Study of Labor (IZA).
  4. Oded Stark & Franz Rendl & Marcin Jakubek, 2012. "The merger of populations, the incidence of marriages, and aggregate unhappiness," Journal of Evolutionary Economics, Springer, Springer, vol. 22(2), pages 331-344, April.
  5. Stark, Oded, 2013. "Stressful integration," University of Tuebingen Working Papers in Economics and Finance 56, University of Tuebingen, Faculty of Economics and Social Sciences.
  6. Stark, Oded, 2012. "Integration, social distress, and policy formation," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 120179, University of Bonn, Center for Development Research (ZEF).
  7. Sorger, Gerhard & Stark, Oded, 2013. "Income redistribution going awry: The reversal power of the concern for relative deprivation," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 86(C), pages 1-9.
  8. Stark, Oded, 2012. "Policy responses to a dark side of the integration of regions," University of Tuebingen Working Papers in Economics and Finance 28, University of Tuebingen, Faculty of Economics and Social Sciences.
  9. Stark, Oded, 2012. "Policy responses to a dark side of the integration of regions and nations," Discussion Papers, University of Bonn, Center for Development Research (ZEF) 122036, University of Bonn, Center for Development Research (ZEF).

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