How Much Does Your Boss Make? The Effects of Salary Comparisons

Cullen, Zoë; Pérez-Truglia, Ricardo

doi:10.3386/w24841

“…An alternative would be keeping the source constant and randomly choosing who receives information and who does not. This approach would require minor changes to the econometric framework, see Cullen and Perez-Truglia (2018) for details.…”

Section: Rank Submission Choicesmentioning

confidence: 99%

Choosing Your Pond: Location Choices and Relative Income

Bottan,

Perez-Truglia

2019

AEA Randomized Controlled Trials

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We propose that, when individuals are deciding where to live, they care about the position in the income distribution in their prospective location. To test this hypothesis, we develop a new methodology to estimate preferences over location characteristics that combines choice data, survey data and information-provision experiments. We implement this methodology with a sample of 1,080 senior medical students who participated in the National Resident Matching Program. These subjects were choosing the cities to which they would move and live in for the next five years. We provide suggestive evidence that individuals care about what their relative income would be in a prospective city, and that those preferences have substantial heterogeneity by relationship status. Using a separate subject pool, we replicate our findings and provide tests for the underlying mechanisms.

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“…This again suggests that the incentive power of promotions may be quite important in practice. Pay-for-performance may not always be the most cost-effective way to motivate workers (Cullen and Perez-Truglia 2018), 6 and workers may additionally value managerial titles associated with promotion because they confer status and can be readily advertised on resumes (DeVaro and Waldman 2012;Waldman 2003).…”

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confidence: 99%

“…Cullen and Perez-Truglia (2018) use experimental evidence in the field to show that horizontal pay inequality (which could result from pay-for-performance) can demotivate workers, whereas vertical pay inequality (which could result from promotion-related incentives) can motivate workers.…”

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confidence: 99%

Promotions and the Peter Principle*

Benson

¹

,

Li

²

,

Shue

³

2019

The Quarterly Journal of Economics

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The best worker is not always the best candidate for manager. In these cases, do firms promote the best potential manager or the best worker in their current job? Using microdata on the performance of sales workers at 131 firms, we find evidence consistent with the Peter Principle, which proposes that firms prioritize current job performance in promotion decisions at the expense of other observable characteristics that better predict managerial performance. We estimate that the costs of promoting workers with lower managerial potential are high, suggesting either that firms are making inefficient promotion decisions or that the benefits of promotion-based incentives are great enough to justify the costs of managerial mismatch. We find that firms manage the costs of the Peter Principle by placing less weight on sales performance in promotion decisions when managerial roles entail greater responsibility and when frontline workers are incentivized by strong pay for performance.

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“…An alternative but equally valid approach consists of using a single source of feedback, but showing feedback to half of the subjects, chosen at random -seeCullen and Perez-Truglia (2018), for example.…”

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confidence: 99%

“…An alternative would be keeping the source constant and randomly choosing who receives information and who does not. This approach would require minor changes to the econometric framework, seeCullen and Perez-Truglia (2018) for details.14 Results reported in Appendix A.6.…”

mentioning

confidence: 99%

Choosing Your Pond: Location Choices and Relative Income

Bottan

¹

,

Pérez-Truglia

²

2017

Self Cite

8

0

View full text Add to dashboard Cite

We propose that, when individuals are deciding where to live, they care about the position in the income distribution in their prospective location. To test this hypothesis, we develop a new methodology to estimate preferences over location characteristics that combines choice data, survey data and information-provision experiments. We implement this methodology with a sample of 1,080 senior medical students who participated in the National Resident Matching Program. These subjects were choosing the cities to which they would move and live in for the next five years. We provide suggestive evidence that individuals care about what their relative income would be in a prospective city, and that those preferences have substantial heterogeneity by relationship status. Using a separate subject pool, we replicate our findings and provide tests for the underlying mechanisms.

show abstract

How Much Does Your Boss Make? The Effects of Salary Comparisons

Cited by 84 publications

References 14 publications

Choosing Your Pond: Location Choices and Relative Income

Choosing Your Pond: Location Choices and Relative Income

Promotions and the Peter Principle*

Choosing Your Pond: Location Choices and Relative Income

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