On the Economic Architecture of the Workplace: Repercussions of Social Comparisons amongst Heterogeneous Workers

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URI: http://nbn-resolving.de/urn:nbn:de:bsz:21-opus-55974
http://hdl.handle.net/10900/47843
Dokumentart: ResearchPaper
Date: 2011
Source: University of Tübingen Working Papers in Economics and Finance ; 6
Language: English
Faculty: 6 Wirtschafts- und Sozialwissenschaftliche Fakultät
Department: Wirtschaftswissenschaften
DDC Classifikation: 330 - Economics
Keywords: Einkommen
Other Keywords:
Social comparisons , Heterogeneous workforce , Relative deprivation , Effort exertion, Earnings gap, Earnings compression
License: Publishing license excluding print on demand
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Abstract:

We analyze the impact on a firm’s profits and optimal wage rates, and on the distribution of workers’ earnings, when workers compare their earnings with those of co-workers. We consider a low-productivity worker who receives lower wage earnings than a high-productivity worker. When the low-productivity worker derives (dis)utility not only from his own effort but also from comparing his earnings with those of the high-productivity worker, his response to the sensing of relative deprivation is to increase the optimal level of effort. Consequently, the firm’s profits are higher, its wage rates remain unchanged, and the distribution of earnings is compressed.

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