Cultural Diversity, Status Concerns and the Organization of Work

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

22 Scopus citations

Abstract

A well-documented human tendency is to compare outcomes with others, trying to outperform them. These tendencies vary across cultures and among different individuals in a given society. To understand the implications of such diversity in status considerations on wages, contracts, sorting and output we use a standard principal agent framework in which firms consist of two workers and a principal. We find that, in equilibrium, firms mix workers with different status concerns to enhance 'cultural trade'. Although workers may have the same productivity, equilibrium will generate a dispersion in (expected) wages, and workers with status concerns will have more high-powered incentives, work more and earn more than workers who do not care about status. Finally, we find that a more diverse workforce can increase the total output of the economy. This increase in output is a result of the higher effort exerted by the status minded workers that offsets the reduction in effort by those who do not care about status.

Original languageEnglish
Title of host publicationThe Economics of Immigration and Social Diversity
EditorsSolomon Polachek, Carmel Chiswick, Hillel Rapoport
PublisherEmerald
Pages361-396
Number of pages36
ISBN (Print)0762312750, 9780762312757
DOIs
StatePublished - 2006

Publication series

NameResearch in Labor Economics
Volume24
ISSN (Print)0147-9121

Funding

FundersFunder number
Israel Science Foundation0610110951

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