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Cultural Diversity, Status Concerns and the Organization of Work

In: The Economics of Immigration and Social Diversity

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  • Chaim Fershtman
  • Hans K. Hvide
  • Yoram Weiss

Abstract

A well-documented human tendency is to compare outcomes with others, trying to outperform them. These tendencies vary across cultures and among different individuals in a given society. To understand the implications of such diversity in status considerations on wages, contracts, sorting and output we use a standard principal agent framework in which firms consist of two workers and a principal. We find that, in equilibrium, firms mix workers with different status concerns to enhance ‘cultural trade’. Although workers may have the same productivity, equilibrium will generate a dispersion in (expected) wages, and workers with status concerns will have more high-powered incentives, work more and earn more than workers who do not care about status. Finally, we find that a more diverse workforce can increase the total output of the economy. This increase in output is a result of the higher effort exerted by the status minded workers that offsets the reduction in effort by those who do not care about status.

Suggested Citation

  • Chaim Fershtman & Hans K. Hvide & Yoram Weiss, 2006. "Cultural Diversity, Status Concerns and the Organization of Work," Research in Labor Economics, in: The Economics of Immigration and Social Diversity, pages 361-396, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rleczz:s0147-9121(05)24011-6
    DOI: 10.1016/S0147-9121(05)24011-6
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    1. Kräkel, Matthias, 2005. "Emotions and the Optimality of Unfair Tournaments," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 45, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    2. Costa, Dora L. & Kahn, Matthew E., 2006. "Forging a New Identity: The Costs and Benefits of Diversity in Civil War Combat Units for Black Slaves and Freemen," The Journal of Economic History, Cambridge University Press, vol. 66(4), pages 936-962, December.
    3. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series 1282, CESifo.
    4. List, John A. & Rasul, Imran, 2011. "Field Experiments in Labor Economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 2, pages 103-228, Elsevier.
    5. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2010. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," American Economic Review, American Economic Association, vol. 100(5), pages 2261-2278, December.
    6. Antonio Cabrales & Antoni Calvó-Armengol & Nicola Pavoni, 2008. "Social Preferences, Skill Segregation, and Wage Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 65-98.
    7. Emmanuelle Auriol & Régis Renault, 2008. "Status and incentives," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 305-326, March.
    8. Cabrales, Antonio & Calvó-Armengol, Antoni, 2008. "Interdependent preferences and segregating equilibria," Journal of Economic Theory, Elsevier, vol. 139(1), pages 99-113, March.
    9. Ramalingam, Abhijit, 2009. ""Endogenous" Relative Concerns: The Impact of Workers' Characteristics on Status and Pro ts in the Firm," MPRA Paper 18759, University Library of Munich, Germany.
    10. Matthias Kräkel, 2008. "Emotions and the optimality of uneven tournaments," Review of Managerial Science, Springer, vol. 2(1), pages 61-79, March.
    11. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona School of Economics.
    12. Oriana Bandiera & Iwan Barankay & Imran Rasul, 2005. "Social Preferences and the Response to Incentives: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 917-962.
    13. Florian Englmaier & Stefan Grimm & Dominik Grothe & David Schindler & Simeon Schudy, 2021. "The Efficacy of Tournaments for Non-Routine Team Tasks," CESifo Working Paper Series 9189, CESifo.
    14. Tore Ellingsen & Magnus Johannesson, 2007. "Paying Respect," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 135-150, Fall.
    15. Ederer, Florian & Patacconi, Andrea, 2010. "Interpersonal comparison, status and ambition in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 348-363, August.
    16. Empar Pons Blasco & Luisa Escriche Bertolín, 2009. "Who moves up the career ladder? A model of gender differences in job promotion," Working Papers. Serie AD 2009-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    17. Kräkel, Matthias, 2008. "Emotions in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 204-214, July.

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