A behavioral account of the labor market: the role of fairness concerns
AbstractIn this paper, we argue that important labor market phenomena can be better understood if one takes (i) the inherent incompleteness and relational nature of most employment contracts and (ii) the existence of reference-dependent fairness concerns among a substantial share of the population into account. Theory shows and experiments confirm, that even if fairness concerns were only to exert weak effects in one-shot interactions, repeated interactions greatly magnify the relevance of such concerns on economic outcomes. We also review evidence from laboratory and field experiments examining the role of wages and fairness on effort, derive predictions from our approach for entry-level wages and incumbent workers’ wages, confront these predictions with the evidence, and show that referencedependent fairness concerns may have important consequences for the effects of economic policies such as minimum wage laws.
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Bibliographic InfoPaper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 394.
Date of creation: Nov 2008
Date of revision:
General Microeconomics; general labor and demographic economics; general industrial organization;
Other versions of this item:
- Ernst Fehr & Lorenz Goette & Christian Zehnder, 2009. "A Behavioral Account of the Labor Market: The Role of Fairness Concerns," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 355-384, 05.
- Fehr, Ernst & Götte, Lorenz & Zehnder, Christian, 2008. "A Behavioral Account of the Labor Market: The Role of Fairness Concerns," IZA Discussion Papers 3901, Institute for the Study of Labor (IZA).
- D0 - Microeconomics - - General
- J0 - Labor and Demographic Economics - - General
- L0 - Industrial Organization - - General
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