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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. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles," Post-Print halshs-00754299, HAL.
  2. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  3. 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.
  4. Rosen, Sherwin, 1986. "Prizes and Incentives in Elimination Tournaments," American Economic Review, American Economic Association, vol. 76(4), pages 701-15, September.
  5. Antonio Cabrales & Antoni Calvó-Armengol & Nicola Pavoni, 2004. "Social Preferences, Skill Segregation and Wage Dynamics," Working Papers 181, Barcelona Graduate School of Economics.
  6. Shlomo Yitzhaki, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 321-324.
  7. 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.
  8. Hanming Fang & Giuseppe Moscarini, 2003. "Morale Hazard," Cowles Foundation Discussion Papers 1422, Cowles Foundation for Research in Economics, Yale University.
  9. Bandiera, Oriana & Barankay, Iwan & Rasul, Imran, 2009. "Social Incentives in the Workplace," IZA Discussion Papers 4190, Institute for the Study of Labor (IZA).
  10. Stark, Oded & You Qiang Wang, 2002. "A Theory of Self-Segregation as a Response to Relative Deprivation," Royal Economic Society Annual Conference 2002 168, Royal Economic Society.
  11. Amihai Glazer, 2008. "Optimal Contracts When a Worker Envies His Boss," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(1), pages 120-137, May.
  12. Paul Osterman, 2006. "The Wage Effects of High Performance Work Organization in Manufacturing," ILR Review, Cornell University, ILR School, vol. 59(2), pages 187-204, January.
  13. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 255-283.
  14. C. Simon Fan & Oded Stark, 2007. "A Social Proximity Explanation of the Reluctance to Assimilate," Kyklos, Wiley Blackwell, vol. 60(1), pages 55-63, 02.
  15. Bull, Clive & Schotter, Andrew & Weigelt, Keith, 1985. "Tournaments and Piece Rates: An Experimental Study," Working Papers 85-21, C.V. Starr Center for Applied Economics, New York University.
  16. John Knight & Lina Song, 2007. "Subjective Well-being and its Determinants in Rural China," Economics Series Working Papers 334, University of Oxford, Department of Economics.
  17. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
  18. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
  19. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  20. BOSSERT, Walter & D’AMBROSIO, Conchita, 2004. "Reference Groups and Individual Deprivation," Cahiers de recherche 13-2004, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  21. Mas, Alexandre & Moretti, Enrico, 2006. "Peers at Work," IZA Discussion Papers 2292, Institute for the Study of Labor (IZA).
  22. Michael A. Quinn, 2006. "Relative Deprivation, Wage Differentials and Mexican Migration," Review of Development Economics, Wiley Blackwell, vol. 10(1), pages 135-153, 02.
  23. Stark, Oded & Yitzhaki, Shlomo, 1988. "Labour Migration as a Response to Relative Deprivation," MPRA Paper 21670, University Library of Munich, Germany.
  24. Levine, David I., 1991. "Cohesiveness, productivity, and wage dispersion," Journal of Economic Behavior & Organization, Elsevier, vol. 15(2), pages 237-255, March.
  25. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
  26. Armin Falk & Andrea Ichino, 2006. "Clean Evidence on Peer Effects," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 39-58, January.
  27. Oded Stark & J. Taylor, 1989. "Relative deprivation and international migration oded stark," Demography, Springer;Population Association of America (PAA), vol. 26(1), pages 1-14, February.
  28. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
  29. 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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