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Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

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  • Arindrajit Dube
  • Laura Giuliano
  • Jonathan Leonard

Abstract

We analyze how separations responded to arbitrary differences in own and peer wages at a large US retailer. Regression-discontinuity estimates imply large causal effects of own-wages on separations, and on quits in particular. However, this own-wage response could reflect comparisons either to market wages or to peer wages. Estimates using peer-wage discontinuities show large peer-wage effects and imply the own-wage separation response mostly reflects peer comparisons. The peer effect is driven by comparisons with higher-paid peers—suggesting concerns about fairness. Separations appear fairly insensitive when raises are similar across peers—suggesting search frictions and monopsony are relevant in this low-wage sector.

Suggested Citation

  • Arindrajit Dube & Laura Giuliano & Jonathan Leonard, 2019. "Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior," American Economic Review, American Economic Association, vol. 109(2), pages 620-663, February.
  • Handle: RePEc:aea:aecrev:v:109:y:2019:i:2:p:620-63
    Note: DOI: 10.1257/aer.20160232
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    Citations

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    Cited by:

    1. Nick Bloom & Fatih Guvenen & David J. Price & Jae Song, 2015. "Firming Up Inequality," CEP Discussion Papers dp1354, Centre for Economic Performance, LSE.
    2. David H. Autor & Alan Manning & Christopher L. Smith, 2016. "The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment," American Economic Journal: Applied Economics, American Economic Association, vol. 8(1), pages 58-99, January.
    3. Zwickl, Klara & Disslbacher, Franziska & Stagl, Sigrid, 2016. "Work-sharing for a sustainable economy," Ecological Economics, Elsevier, vol. 121(C), pages 246-253.
    4. Kuhn, Andreas, 2015. "The Individual Perception of Wage Inequality: A Measurement Framework and Some Empirical Evidence," IZA Discussion Papers 9579, Institute for the Study of Labor (IZA).
    5. Zwickl, Klara & Disslbacher, Franziska & Stagl, Sigrid, 2015. "Work-sharing for a sustainable economy," Ecological Economic Papers 4564, WU Vienna University of Economics and Business.
    6. Adam M. Lavecchia, 2018. "Minimum Wage Policy with Optimal Taxes and Unemployment," Working Papers 1801E, University of Ottawa, Department of Economics.
    7. repec:iza:izawol:journl:2017:n:367 is not listed on IDEAS
    8. Kevin Rinz, 2018. "Labor Market Concentration, Earnings Inequality, and Earnings Mobility," CARRA Working Papers 2018-10, Center for Economic Studies, U.S. Census Bureau.
    9. Bracha, Anat, 2016. "Relative pay, productivity, and labor supply," Current Policy Perspectives 17-2, Federal Reserve Bank of Boston.
    10. Brian Bell & Stephen Machin, 2018. "Minimum Wages and Firm Value," Journal of Labor Economics, University of Chicago Press, vol. 36(1), pages 159-195.
    11. Patrick Kline & Neviana Petkova & Heidi Williams & Owen Zidar, 2018. "Who Profits from Patents? Rent-Sharing at Innovative Firms," NBER Working Papers 25245, National Bureau of Economic Research, Inc.
    12. Doruk Cengiz & Arindrajit Dube & Attila Lindner & Ben Zipperer, 2018. "The Effect of Minimum Wages on Low-Wage Jobs: Evidence from the United States Using a Bunching Estimator," CEP Discussion Papers dp1531, Centre for Economic Performance, LSE.
    13. Douglas A. Webber, 2018. "Employment Adjustment Over the Business Cycle: The Impact of Competition in the Labor Market," DETU Working Papers 1806, Department of Economics, Temple University.
    14. Manning, Alan, 2016. "The elusive employment effect of the minimum wage," LSE Research Online Documents on Economics 67646, London School of Economics and Political Science, LSE Library.
    15. repec:wfo:wstudy:58684 is not listed on IDEAS
    16. Emily Breza & Supreet Kaur & Yogita Shamdasani, 2016. "The Morale Effects of Pay Inequality," NBER Working Papers 22491, National Bureau of Economic Research, Inc.
    17. Klara Zwickl & Franziska Disslbacher & Sigrid Stagl, 2015. "Work-sharing for a sustainable economy," Ecological Economics Papers ieep4, Institute of Ecological Economics.
    18. Sandvik, Jason & Saouma, Richard & Seegert, Nathan & Stanton, Christopher T., 2018. "Analyzing the Aftermath of a Compensation Reduction," CEPR Discussion Papers 13242, C.E.P.R. Discussion Papers.
    19. Klara Zwickl & Franziska Disslbacher & Sigrid Stagl, 2016. "Work-sharing for a sustainable economy," WWWforEurope Working Papers series 111, WWWforEurope.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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