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Testing Fair Wage Theory

  • John Burger


  • Stephen Walters


Fairness considerations often are invoked to explain wage differences that appear unrelated to worker characteristics or job conditions, but non-experimental tests of fair wage models are rare and weak because of the limits of available market-generated data. In particular, such data rarely permit researchers to (a) identify suitable reference points that employees and employers might use in determining what is fair and (b) control for employees’ marginal output and its value. This study utilizes a unique dataset from the baseball labor market that solves both problems. We find no support for fair wage theory in this market. We also find that fairness premia can be illusory: Wages appear to be adjusted upward for reasons of fairness in regressions that control for variation in individuals’ physical output, but such premia evaporate when the value of that output (which can be market- or firm-specific) is held constant. This suggests that avoiding proxy measures of workers’ marginal revenue products in wage studies might reduce the number of labor market "anomalies" economists must resolve.

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Article provided by Springer in its journal Journal of Labor Research.

Volume (Year): 29 (2008)
Issue (Month): 4 (December)
Pages: 318-332

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Handle: RePEc:spr:jlabre:v:29:y:2008:i:4:p:318-332
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