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Social comparisons in oligopsony

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  • Goerke, Laszlo
  • Neugart, Michael

Abstract

A large body of evidence suggests that social comparisons matter for workers’ valuation of the wage they receive. The consequences of social comparisons in imperfectly competitive labor markets are less well understood. We analyze an oligopsonistic model of the labor market where workers derive (dis-)utility from comparing their own wage with wages paid at other firms. As social comparisons become more prevalent all workers are paid higher wages, the wage distribution becomes more equal, and employment shifts to high productivity firms. Moreover, the total wage bill and output increase, while aggregate profits decline. Overall welfare rises. Our theoretical results have implications for estimating the elasticity of the labor supply curve facing a firm.

Suggested Citation

  • Goerke, Laszlo & Neugart, Michael, 2017. "Social comparisons in oligopsony," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 196-209.
  • Handle: RePEc:eee:jeborg:v:141:y:2017:i:c:p:196-209
    DOI: 10.1016/j.jebo.2017.07.002
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    Keywords

    Social comparisons; Status seeking; Oligopsony; Wage distribution; Functional income distribution; Welfare;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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