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Testing Fair Wage Theory

  • John D. Burger

    ()

    (Department of Economics, Loyola College in Maryland)

  • Stephen J.K. Walters

    ()

    (Department of Economics, Loyola College in Maryland)

Fairness considerations often are invoked to explain wage differences that appear unrelated to worker characteristics or job conditions, but non-experimental tests of fair wage models are rare and weak because of the limits of available market-generated data. In particular, such data rarely permit researchers to (a) identify suitable reference points that employees and employers might use in determining what is fair and (b) control for employees’ marginal output and its value. This study utilizes a unique dataset from the baseball labor market that solves both problems. We find no support for fair wage theory in this market. We also find that fairness premia can be illusory: Wages appear to be adjusted upward for reasons of fairness in regressions that control for variation in individuals’ physical output, but such premia evaporate when the value of that output (which can be market- or firm-specific) is held constant. This suggests that avoiding proxy measures of workers’ marginal revenue products in wage studies might reduce the number of labor market "anomalies" economists must resolve.

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File URL: http://college.holycross.edu/RePEc/spe/BurgerWalters_FairWage.pdf
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Paper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0623.

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Length: 29 pages
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:spe:wpaper:0623
Contact details of provider: Web page: http://www.cdes.fr/index.php?id=fr69

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  1. 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 728-41, September.
  2. Robert Gibbons & Lawrence F. Katz, 1989. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," NBER Working Papers 3182, National Bureau of Economic Research, Inc.
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  5. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  6. John D. Burger & Stephen J.K. Walters, 2005. "Arbitrator Bias and Self-Interest: Lessons from the Baseball Labor Market," Journal of Labor Research, Transaction Publishers, vol. 26(2), pages 267-280, January.
  7. Strom, Bjarne, 1995. "Envy, Fairness and Political Influence in Local Government Wage Determination: Evidence from Norway," Economica, London School of Economics and Political Science, vol. 62(247), pages 389-409, August.
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  9. Walter Y. Oi & Todd L. Idson, 1999. "Workers Are More Productive in Large Firms," American Economic Review, American Economic Association, vol. 89(2), pages 104-108, May.
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  11. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
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  13. McKinley Blackburn & David Neumark, 1991. "Unobserved Ability, Efficiency Wages, and Interindustry Wage Differentials," NBER Working Papers 3857, National Bureau of Economic Research, Inc.
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  16. Oi, Walter Y. & Idson, Todd L., 1999. "Firm size and wages," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 33, pages 2165-2214 Elsevier.
  17. Simon Rottenberg, 1956. "The Baseball Players' Labor Market," Journal of Political Economy, University of Chicago Press, vol. 64, pages 242.
  18. Oi, Walter Y, 1983. "Heterogeneous Firms and the Organization of Production," Economic Inquiry, Western Economic Association International, vol. 21(2), pages 147-71, April.
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  20. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-30, December.
  21. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
  22. Peter Skott, 2004. "Fairness as a source of hysteresis in employment and relative wages," UMASS Amherst Economics Working Papers 2004-04, University of Massachusetts Amherst, Department of Economics.
  23. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-59, October.
  24. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  25. Rees, Albert, 1993. "The Role of Fairness in Wage Determination," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 243-52, January.
  26. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  27. William T. Dickens, 1986. "Wages, Employment and the Threat of Collective Action by Workers," NBER Working Papers 1856, National Bureau of Economic Research, Inc.
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