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On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers

  • Oded Stark
  • Walter Hyll

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 coworkers. 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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File URL: http://dx.doi.org/10.1086/659104
Download Restriction: Access to the online full text or PDF requires a subscription.

File URL: http://dx.doi.org/10.1086/659104
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 29 (2011)
Issue (Month): 2 ()
Pages: 349 - 375

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Handle: RePEc:ucp:jlabec:doi:10.1086/659104
Contact details of provider: Web page: http://www.journals.uchicago.edu/JOLE/

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  1. Antonio Cabrales & Antoni Calvo-Armengol & Nicola Pavoni, 2005. "Social Preferences, Skill Segregation, and Wage Dynamics," 2005 Meeting Papers 205, Society for Economic Dynamics.
  2. Shlomo Yitzhaki, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 321-324.
  3. Fan, C. Simon & Stark, Oded, 2007. "A social proximity explanation of the reluctance to assimilate," MPRA Paper 30940, University Library of Munich, Germany.
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  8. Stark, Oded & Yitzhaki, Shlomo, 1988. "Labour Migration as a Response to Relative Deprivation," MPRA Paper 21670, University Library of Munich, Germany.
  9. Hanming Fang & Giuseppe Moscarini, 2003. "Morale Hazard," Cowles Foundation Discussion Papers 1422, Cowles Foundation for Research in Economics, Yale University.
  10. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
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  13. Armin Falk & Andrea Ichino, 2004. "Clean Evidence on Peer Effects," Levine's Bibliography 666156000000000439, UCLA Department of Economics.
  14. repec:oup:restud:v:77:y:2010:i:2:p:417-458 is not listed on IDEAS
  15. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  16. 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.
  17. Levine, David I., 1991. "Cohesiveness, productivity, and wage dispersion," Journal of Economic Behavior & Organization, Elsevier, vol. 15(2), pages 237-255, March.
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  20. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  21. 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.
  22. Stark, Oded & Micevska, Maja & Mycielski, Jerzy, 2009. "Relative poverty as a determinant of migration: Evidence from Poland," Economics Letters, Elsevier, vol. 103(3), pages 119-122, June.
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  27. 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.
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