Relative Pay and Labor Supply

Bracha, Anat; Gneezy, Uri; Loewenstein, George

doi:10.1086/678494

Cited by 89 publications

(98 citation statements)

References 18 publications

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“…Card et al (2012) o er some support for this hypothesis by showing that job satisfaction is more closely related to pay rank than to actual pay di erentials. Second, recent laboratory evidence suggests that pay di erences elicit stronger responses when they are arbitrary than when they are justified (Bracha et al 2015). Hence the arbitrary nature of the pay di erences at our firm may have made workers more likely to respond to moderate inequities.…”

Section: Discussionmentioning

confidence: 89%

“…6 Again, a major challenge in this literature is the endogeneity of wages, and the di erence in estimates may be partly due to di erent strategies for addressing this issue.…”

Section: Introductionmentioning

confidence: 99%

“…On the other hand, fairness concerns among employees may serve as an important constraint on a firm's wage-setting behavior beyond the constraints of the market. In particular, the concentration of the quit response to relative pay among lower-paid workers suggests that a more equitable 6 Other labor market regulations, including minimum wages, have been used to assess labor market frictions.…”

Section: Introductionmentioning

confidence: 99%

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Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

Dubé

Giuliano

Leonard

2018

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu We analyze how quits responded to arbitrary differences in own and peer wages using an unusual feature of a pay raise at a large U.S. retailer. The firm's use of discrete pay steps created discontinuities in raises, where workers earning within 1 cent of each other received new wages that differed by 10 cents. First, we estimate a regression discontinuity (RD) model based on own wages; we find large causal effects of wages on quits, with quit elasticities less than -10. Next, we address whether the overall quit response reflects the impact of comparisons to market wages or to the wages of in-store peers. Here we use a multidimensional RD design that includes both a sharp RD in the own wage and a fuzzy RD in the average peer wage. We find that the large quit response mostly reflects relative-pay concerns and not market comparisons. After accounting for peer effects, quits do not appear to be very sensitive to wages -consistent with the presence of significant search frictions. Finally, we find that the relative-pay effect is nonlinear and driven mainly by workers who are paid less than their peers -suggesting concerns about fairness or disadvantageous inequity. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SJEL Classification: J00, J31, J42, J63

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Section: Discussionmentioning

confidence: 89%

“…6 Again, a major challenge in this literature is the endogeneity of wages, and the di erence in estimates may be partly due to di erent strategies for addressing this issue.…”

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

Dubé

Giuliano

Leonard

2018

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“…Pérez-Asenjo (2011) demonstrates that the probability of working full-time instead of part-time, of labor force participation, and working hours decline with relative income. Moreover, Bracha et al (2015) present empirical evidence for students that information about relative pay tends to reduce labor supply of those male subjects paid a lower wage. Finally, Breza et al (2016) conducted a eld experiment with Indian manufacturing workers to, inter alia, analyse the eect of relative wages on attendance.…”

Section: Literature Reviewmentioning

confidence: 92%

Social comparisons in oligopsony

Goerke

Neugart

2017

Journal of Economic Behavior & Organization

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractA large body of evidence suggests that social comparisons matter for workers' valuation of the wage they receive. The consequences of social comparisons in imperfectly competitive labor markets are less well understood. We analyze an oligopsonistic model of the labor market where workers derive (dis-) utility from comparing their own wage with wages paid at other rms. As social comparisons become more prevalent all workers are paid higher wages, the wage distribution becomes more equal, and employment shifts to high productivity rms. Moreover, the total wage bill and output increase, while aggregate prots decline. Overall welfare rises. Our theoretical results have implications for estimating the elasticity of the labor supply curve facing a rm.

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“…Our findings corroborate recent studies that show labor supply is a↵ected by reference points. Gächter and Thoni [2010] and Bracha et al [2015] provide experimental evidence that workers reduce e↵ort if they learn that they are earning less than their peers. Workers in a field experiment by Kube et al [2013] reduce the number of books they catalog for a library after their wage is cut relative to what was indicated in the job advertisement.…”

Section: Introductionmentioning

confidence: 99%

If Wages Fell During a Recession

Buchanan

Houser

2019

SSRN Journal

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Many economies exhibit downward wage rigidity. Surveys of managers indicate that employers hold wages rigid because they believe morale will su↵er after a wage cut. Otherwise, there is little evidence for how employers' beliefs contribute to wage rigidity and whether those beliefs are accurate. Our design allows us to compare beliefs and e↵ort rigorously. We demonstrate that e↵ort falls after workers experience a wage cut and also that workers form reference points from wage contracts. Despite this partial confirmation of the morale theory as an explanation for wage rigidity, half of the employers in our experiment cut wages and lose money as a result. In a treatment where a recession is o↵set by nominal inflation, real wage cuts do not have a significant e↵ect on e↵ort. (JEL codes: C91 , D84) 1 Daly and Hobijn [2014] use the Current Population Survey data to show that the number of wage freezes increased after the Great Recession. The distribution of wage changes implies that firms were avoiding wage cuts by keeping wages rigid. They are able to replicate this data pattern using a model in which some percent of workers cannot renegotiate their wage contract in a given period. Our research question is why it appears that many employment contracts cannot be renegotiated and what common characteristics rigid agents might share. Schmitt-Grohé and Uribe [2016] document that nominal wages are downwardly rigid in emerging countries.L. Gerhards and M. Heinz. In good times and bad reciprocal behavior at the workplace in times of economic crises.

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Relative Pay and Labor Supply

Cited by 89 publications

References 18 publications

Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

Social comparisons in oligopsony

If Wages Fell During a Recession

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