On the economic architecture of the workplace: Repercussions of social comparisons among heterogeneous workers

Oded Stark*, Walter Hyll

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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 coworkers. We consider a lowproductivity worker who receives lower wage earnings than a highproductivity 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.

Original languageEnglish
Pages (from-to)349-375
Number of pages27
JournalJournal of Labor Economics
Volume29
Issue number2
DOIs
StatePublished - Apr 2011
Externally publishedYes

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