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Wage Heterogeneity as Another Worker Discipline Device

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  • Jaylson Jair da Silveira

  • Gilberto Tadeu Lima

Abstract

Motivated by evidence on endogenous labor effort and persistent wage differentials across firms, we develop a labor-market model in which firms differ in their wage-compensation strategies. A firm adopts either a wage-setting strategy, under which it pays an efficiency wage, or a wage-taking strategy, under which it pays the competitive wage determined in the non-efficiency-wage segment of the labor market. In a given production period, the efficiency wage, the competitive wage, the wage premium between them, and the corresponding employment levels in each segment of the labor market are parameterized by the cross-sectional distribution of wage-compensation strategies across firms. This distribution is endogenously time-varying across production periods, as determined by an evolutionary selection protocol. We characterize the resulting dynamic behavior and identify the associated evolutionary equilibria and their stability properties. The formal analysis shows that the unique stable equilibrium is polymorphic, featuring the coexistence of wage-setting and wage-taking firms. We then examine the effects of changes in the polymorphic evolutionary equilibrium on three alternative measures of wage inequality. The model provides a unified framework for analyzing how endogenous on-the-job effort and heterogeneous firm wage-compensation behavior generate persistent wage inequality among observationally equivalent workers.

Suggested Citation

  • Jaylson Jair da Silveira & Gilberto Tadeu Lima, 2026. "Wage Heterogeneity as Another Worker Discipline Device," Working Papers, Department of Economics 2026_18, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2026wpecon18
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    Keywords

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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