IDEAS home Printed from https://ideas.repec.org/p/aah/aarhec/2003-6.html
   My bibliography  Save this paper

Fairness as a source of hysteresis in employment and relative wages

Author

Listed:
  • Skott, Peter

    () (Department of Economics, University of Aarhus, Denmark)

Abstract

This paper analyses the influence of norms of fairness on wage formation. Fairness is defined by `real-wage' and `relative-wage' norms that relate wage offers to workers' own current wage and to the wages of other groups of workers, and, to avoid shirking, firms pay fair wages. The wage norms change endogenously, and the result is hysteresis with respect to both employment and the distribution of wages. An extension of the model that allows `induced overeducation' may help explain trends in wage inequality.

Suggested Citation

  • Skott, Peter, "undated". "Fairness as a source of hysteresis in employment and relative wages," Economics Working Papers 2003-6, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2003-6
    as

    Download full text from publisher

    File URL: ftp://ftp.econ.au.dk/afn/wp/03/wp03_06.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ernst Fehr & Simon Gächter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
    2. Daly, Mary C. & Buchel, Felix & Duncan, Greg J., 2000. "Premiums and penalties for surplus and deficit education: Evidence from the United States and Germany," Economics of Education Review, Elsevier, vol. 19(2), pages 169-178, April.
    3. Skott, P., 1990. "Efficiency Wages, Mark-up Pricing and Effective Demand," Discussion Paper 1990-26, Tilburg University, Center for Economic Research.
    4. Paul Auerbach & Peter Skott, "undated". "Skill Asymmetries, Increasing Wage Inequality and Unemployment," Economics Working Papers 2000-18, Department of Economics and Business Economics, Aarhus University.
    5. David R. Howell, 2002. "Increasing Earnings Inequality and Unemployment in Developed Countries: Markets, Institutions and the "Unified Theory"," SCEPA working paper series. 2002-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    6. Laurence Ball & Robert Moffitt, 2001. "Productivity Growth and the Phillips Curve," Economics Working Paper Archive 450, The Johns Hopkins University,Department of Economics.
    7. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    8. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    9. Daniel Kahneman & Jack L. Knetsch & Richard H. Thaler, 1991. "Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 193-206, Winter.
    10. Marco Manacorda & Peter Robinson, 1997. "Qualifications and the Labour Market in Britain: 1984-1994 Skill Biased Change in the Demand for Labour or Credentialism?," CEP Discussion Papers dp0330, Centre for Economic Performance, LSE.
    11. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo.
    12. 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.
    13. George A. Akerlof, 1980. "A Theory of Social Custom, of which Unemployment may be One Consequence," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 749-775.
    14. Edward N. Wolff, 1995. "Technology and the Demand for Skills," Economics Working Paper Archive wp_153, Levy Economics Institute.
    15. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    16. Shaun Hargreaves-Heap & Yanis Varoufakis, 2002. "Some Experimental Evidence On The Evolution Of Discrimination, Co--Operation And Perceptions Of Fairness," Economic Journal, Royal Economic Society, vol. 112(481), pages 679-703, July.
    17. Grubb, David B, 1986. "Topics in the OECD Phillips Curve," Economic Journal, Royal Economic Society, vol. 96(381), pages 55-79, March.
    18. D. Grubb & R. Jackman & R. Layard, 1982. "Causes of the Current Stagflation," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 707-730.
    19. A. B. Atkinson, 1998. "The distribution of income in industrialized countries," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-32.
    20. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    21. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    22. Paldam, Martin, 1989. " A Wage Structure Theory of Inflation, Industrial Conflicts and Trade Unions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 91(1), pages 63-81.
    23. Hersch, Joni, 1991. "Education Match and Job Match," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 140-144, February.
    24. K. W. Rothschild, 1982. "Stagflation," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 8(2), pages 183-194.
    25. Sicherman, Nachum, 1991. ""Overeducation" in the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 9(2), pages 101-122, April.
    26. F Green & Steven McIntosh & Anna Vignoles, 1999. "Overeducation and Skills - Clarifying the Concepts," CEP Discussion Papers dp0435, Centre for Economic Performance, LSE.
    27. Skott, Peter, "undated". "Distributional consequences of neutral shocks to economic activity in a model with efficiency wages and overeducation," Economics Working Papers 2003-5, Department of Economics and Business Economics, Aarhus University.
    28. Palley, Thomas I., 1994. "The fair wage-effort hypothesis: Implications for the distribution of income and dual labor markets," Journal of Economic Behavior & Organization, Elsevier, vol. 24(2), pages 195-205, July.
    29. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
    30. James K. Galbraith, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter.
    31. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    32. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May.
    33. Newell, A. & Symons, J. S. V., 1987. "Corporatism, laissez-faire and the rise in unemployment," European Economic Review, Elsevier, vol. 31(3), pages 567-601, April.
    34. Eldar Shafir & Peter Diamond & Amos Tversky, 1997. "Money Illusion," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 341-374.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Skott, Peter & Auerbach, Paul, 2003. "Wage inequality and skill asymmetries," Economics Discussion Papers 2003-7, School of Economics, Kingston University London.
    2. Paul Auerbach & Peter Skott, "undated". "Skill Asymmetries, Increasing Wage Inequality and Unemployment," Economics Working Papers 2000-18, Department of Economics and Business Economics, Aarhus University.
    3. Götte, Lorenz & Huffman, David B., 2005. "Do Emotions Improve Labor Market Outcomes?," IZA Discussion Papers 1895, Institute of Labor Economics (IZA).
    4. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    5. Peter Skott, 2006. "Wage inequality and overeducation in a model with efficiency wages," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(1), pages 94-123, February.
    6. Amitava K. Dutt & Peter Skott, 2005. "Keynesian Theory and the AD-AS Framework: A Reconsideration," UMASS Amherst Economics Working Papers 2005-11, University of Massachusetts Amherst, Department of Economics.
    7. Lin, Chung-cheng & Yang, C.C., 2008. "The firm as a community explaining asymmetric behavior and downward rigidity of wages," Journal of Economic Behavior & Organization, Elsevier, vol. 68(2), pages 390-400, November.
    8. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    9. Agell, Jonas & Bennmarker, Helge, 2002. "Wage policy and endogenous wage rigidity: a representative view from the inside," Working Paper Series 2002:12, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    10. Holden, Steinar, 2012. "Implications of Insights from Behavioral Economics for Macroeconomic Models," Memorandum 25/2012, Oslo University, Department of Economics.
    11. John Komlos, 2016. "Unemployment in a Just Economy," CESifo Working Paper Series 5974, CESifo.
    12. Chung-cheng Lin & C.C. Yang, 2006. "The Firm as a Community Explaining Asymmetric Behavior and Downward Rigidity of Wages," IEAS Working Paper : academic research 06-A014, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    13. Jonas Agell & Helge Bennmarker, 2003. "Endogenous Wage Rigidity," CESifo Working Paper Series 1081, CESifo.
    14. Agell, Jonas & Bennmarker, Helge, 2007. "Wage incentives and wage rigidity: A representative view from within," Labour Economics, Elsevier, vol. 14(3), pages 347-369, June.
    15. Fehr, Ernst & Goette, Lorenz, 2005. "Robustness and real consequences of nominal wage rigidity," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 779-804, May.
    16. Panos, Georgios & Theodossiou, Ioannis, 2009. "Union Mediation and Adaptation to Reciprocal Loyalty Arrangements," MPRA Paper 15471, University Library of Munich, Germany.
    17. Teck-Hua Ho & Xuanming Su, 2009. "Peer-Induced Fairness in Games," American Economic Review, American Economic Association, vol. 99(5), pages 2022-2049, December.
    18. Bruno S. Frey & Matthias Benz, 2004. "From Imperialism to Inspiration: A Survey of Economics and Psychology," Chapters, in: John B. Davis & Alain Marciano & Jochen Runde (ed.), The Elgar Companion To Economics and Philosophy, chapter 4, Edward Elgar Publishing.
    19. Thomas K. Bauer & Tanja Kasten & Lars-H. R. Siemers, 2017. "Business Taxation and Wages: Redistribution and Asymmetric Effects," MAGKS Papers on Economics 201732, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    20. Azar, Ofer H., 2004. "What sustains social norms and how they evolve?: The case of tipping," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 49-64, May.

    More about this item

    Keywords

    Wage norms; fairness; hysteresis; overeducation; wage inequality; unemployment;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aah:aarhec:2003-6. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://www.econ.au.dk/afn/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.