Peer Effects in the Workplace

Abstract

Existing evidence on peer effects in the productivity of coworkers stems from either laboratory experiments or real-world studies referring to a specific firm or occupation. In this paper, we aim at providing more generalizable results by investigating a large local labor market, with a focus on peer effects in wages rather than productivity. Our estimation strategy—which links the average permanent productivity of workers' peers to their wages—circumvents the reflection problem and accounts for endogenous sorting of workers into peer groups and firms. On average over all occupations, and in the type of high-skilled occupations investigated in studies on knowledge spillover, we find only small peer effects in wages. In the type of low-skilled occupations analyzed in extant studies on social pressure, in contrast, we find larger peer effects, about one-half the size of those identified in similar studies on productivity. (JEL J24, J31, J41, M12, M54)

Do social interactions in the workplace lead to productivity spillover among co-workers?

“…Firms in which peer pressure is high may then face problems with worker retention, having to pay higher wages in order to retain workers. Theoretical and empirical results support this view [1]. Thus, while a moderate amount of peer pressure may be profit-enhancing from the point of view of the firm, excessive peer pressure may hurt both firm profits and worker well-being.…”

“…Interestingly, after having thus controlled for a large set of confounding factors, the study finds almost no peer effects in wages for all occupations in the sample [1]. However, when distinguishing between occupations with a high and low incidence of repetitive and predefined tasks, the authors do find larger peer effects in occupations with more repetitive and predefined tasks, such as cashiers, agricultural workers, and other mostly low-skilled manual occupations.…”

“…The same study further addresses the question of what the channel of the peer effect in the sample of low-skilled occupations is, distinguishing between social pressure and knowledge spillover [1]. First, because these are occupations with relatively repetitive and predefined tasks, knowledge might be less important, and output might be reasonably Thomas Cornelissen | Do social interactions in the workplace lead to productivity spillover among co-workers?…”

“…A second step in assessing the generalizability of findings for specific settings is to analyze large-scale data for a representative set of workers, firms, and sectors, as recently provided by a study analyzing matched employer-employee data for a large local labor market in Germany [1]. The study addresses the challenge of finding a comparable output measure across a large range of occupations by focusing on peer effects in wages instead of physical productivity.…”

“…The author also thanks his co-authors of previous work on this topic, Christian Dustmann and Uta Schönberg, for the fruitful collaboration, and Alexandre Mas and Fabian Waldinger for their illuminating presentations in the invited session on Peer Effects at the Fourth SOLE/EALE world meetings. Previous work of the author (together with Christian Dustmann and Uta Schönberg) contains a larger number of background references for the material presented here and has been used intensively in all major parts of this article [1].…”