Social comparisons in oligopsony

Abstract

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.

Thorstein Veblen, Joan Robinson, and George Stigler (Probably) Never Met: Social Preferences, Monopsony, and Government Intervention

“…In the Salop-type model, social comparisons unambiguously raise the labor supply elasticity, such that a crucial element of the present analysis is without impact. Accordingly, we deviate from Goerke and Neugart (2017) by deriving the eects of social comparisons for a monospsony and by demonstrating that the exact nature of the rms' market power aects outcomes. Moreover, and in contrast to Goerke and Neugart (2017), we scrutinize the suitability of various policy instruments to remedy the welfare losses resulting from the interaction of social comparisons and market power by employers for alternative welfare denitions.…”

“…Accordingly, we deviate from Goerke and Neugart (2017) by deriving the eects of social comparisons for a monospsony and by demonstrating that the exact nature of the rms' market power aects outcomes. Moreover, and in contrast to Goerke and Neugart (2017), we scrutinize the suitability of various policy instruments to remedy the welfare losses resulting from the interaction of social comparisons and market power by employers for alternative welfare denitions. Finally, Sandmo (1994) studies a two-part wage schedule in monopsony.…”

“…Using a utility function as in Gali (1994) we derive for a case of relative comparisons that the employment and the wage eect of more intensive social comparisons will both be positive if the production function is not too concave. Thus, in contrast to social comparisons in oligopsony (Goerke and Neugart, 2017), the wage eect of social comparisons is ambiguous in monopsony. In the major part of the paper, we address the welfare eects that the two potentially countervailing distortions have.…”

“…Therefore, the monopsonist can partially internalize the externalities due to social preferences which, for example, is not feasible in oligopsony. This is the case because wages of competitors and, hence, reference income, are given from the perspective of each oligopsonistic rm (Goerke and Neugart, 2017).…”

“…Contrary to our contribution, they are interested in workers' sorting behavior into particular jobs, when they have private information relating to their ability or social preferences. In previous work (Goerke and Neugart, 2017), we analyze social comparisons in oligopsony in which heterogeneous rms have limited market power and compete for the same pool of labor. We show for this framework, based on the set-up by Salop (1979), that a stronger prevalence of wage comparisons decreases wage inequality, shifts the functional income distribution in favor of workers, and increases welfare.…”