IDEAS home Printed from https://ideas.repec.org/p/bge/wpaper/181.html
   My bibliography  Save this paper

Social Preferences, Skill Segregation and Wage Dynamics

Author

Listed:
  • Antonio Cabrales
  • Antoni Calvó-Armengol
  • Nicola Pavoni

Abstract

We study the earning structure and the equilibrium assignment of workers to firms in a model in which workers have social preferences and skills are perfectly substitutable in production. We allow firms to offer long terms contracts and for frictions in the labour market in the form of mobility costs. For low moving costs between firms, heterogeneous productivities lead to widespread workplace skill segregation and the whole market wage dispersion is explained by between firms differences. In a labor market with intermediate levels of mobility costs, segregation is more moderate and wage dispersion arises both within and across firms. For high levels of moving costs the whole wage dispersion is within the firm, and becomes zero when the moving costs are sufficiently high. We show that long terms contracts in the presence of social preferences associate within-firm wage dispersion with novel "internal labor market" features such as a dynamic form of wage compression, gradual promotions, and wage non-monotonicity.

Suggested Citation

  • Antonio Cabrales & Antoni Calvó-Armengol & Nicola Pavoni, 2004. "Social Preferences, Skill Segregation and Wage Dynamics," Working Papers 181, Barcelona School of Economics.
  • Handle: RePEc:bge:wpaper:181
    as

    Download full text from publisher

    File URL: https://www.barcelonagse.eu/sites/default/files/working_paper_pdfs/181.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 541-554.
    2. Pedro Rey‐Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    3. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 817-869.
    4. Claudia Goldin & Robert A. Margo, 1992. "The Great Compression: The Wage Structure in the United States at Mid-Century," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 1-34.
    5. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 817-868.
    6. Patrick Legros & Andrew F. Newman, 2002. "Monotone Matching in Perfect and Imperfect Worlds," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 925-942.
    7. Hibbs, Douglas A, Jr & Locking, Hakan, 2000. "Wage Dispersion and Productive Efficiency: Evidence for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 755-782, October.
    8. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-571, September.
    9. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
    11. Ernst Fehr & Alexander Klein & Klaus M. Schmidt, "undated". "Fairness, Incentives and Contractual Incompleteness," IEW - Working Papers 072, Institute for Empirical Research in Economics - University of Zurich.
    12. Ernst Fehr & Klaus M. Schmidt, "undated". "Theories of Fairness and Reciprocity - Evidence and Economic Applications," IEW - Working Papers 075, Institute for Empirical Research in Economics - University of Zurich.
    13. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June.
    14. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, July.
    15. Rotemberg, Julio J, 1994. "Human Relations in the Workplace," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 684-717, August.
    16. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 715-753.
    17. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-493, May.
    18. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-1136, December.
    19. Chaim Fershtman & Hans K. Hvide & Yoram Weiss, 2006. "Cultural Diversity, Status Concerns and the Organization of Work," Research in Labor Economics, in: The Economics of Immigration and Social Diversity, pages 361-396, Emerald Group Publishing Limited.
    20. Gilles Saint-Paul, 2001. "On the Distribution of Income and Worker Assignment under Intrafirm Spillovers, with an Application to Ideas and Networks," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 1-37, February.
    21. Patrick Legros & Andrew Newman, 2007. "Beauty is a beast, frog is a prince :assortative matching in a nontransferable world," ULB Institutional Repository 2013/7022, ULB -- Universite Libre de Bruxelles.
    22. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    23. George Baker & Michael Gibbs & Bengt Holmstrom, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 881-919.
    24. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, May.
    25. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    26. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-438, April.
    27. Roland Benabou, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 619-652.
    28. Fershtman, C. & Weiss, Y. & Hvide, H.K., 2001. "Status Concerns and the Organization of Work," Papers 2001-2, Tel Aviv.
    29. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
    30. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-133, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pedro Rey‐Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    2. Fredrik Andersson & Mónica García-Pérez & John Haltiwanger & Kristin McCue & Seth Sanders, 2014. "Workplace Concentration of Immigrants," Demography, Springer;Population Association of America (PAA), vol. 51(6), pages 2281-2306, December.
    3. Jan Eeckhout & Philipp Kircher, 2011. "Identifying Sorting--In Theory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(3), pages 872-906.
    4. Amir Habibi, 2023. "Pay Transparency in Organizations," Rationality and Competition Discussion Paper Series 395, CRC TRR 190 Rationality and Competition.
    5. Alain Cohn & Ernst Fehr & Lorenz Goette, 2015. "Fair Wages and Effort Provision: Combining Evidence from a Choice Experiment and a Field Experiment," Management Science, INFORMS, vol. 61(8), pages 1777-1794, August.
    6. Fredrik Andersson & Mónica García-Pérez & John Haltiwanger & Kristin McCue & Seth Sanders, 2014. "Workplace Concentration of Immigrants," Demography, Springer;Population Association of America (PAA), vol. 51(6), pages 2281-2306, December.
    7. Battisti, Michele, 2015. "Present-biased preferences and optimal compensation schedules: a note," MPRA Paper 64818, University Library of Munich, Germany.
    8. Raphaël Soubeyran, 2019. "Technology adoption and pro-social preferences," CEE-M Working Papers halshs-02291905, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    9. Antonio Cabrales & Raffaele Miniaci & Marco Piovesan & Giovanni Ponti, 2010. "Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts," American Economic Review, American Economic Association, vol. 100(5), pages 2261-2278, December.
    10. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona School of Economics.
    11. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    12. Cabrales, Antonio & Calvó-Armengol, Antoni, 2008. "Interdependent preferences and segregating equilibria," Journal of Economic Theory, Elsevier, vol. 139(1), pages 99-113, March.
    13. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(4), pages 371-386, September.
    14. Walter Hyll, 2018. "Relative concerns at the workplace: on the design of the firm as a social space," Journal of Evolutionary Economics, Springer, vol. 28(2), pages 245-264, April.
    15. Juan Gabriel Rodríguez, 2015. "A Class of Social Welfare Functions That Depend on Mean Income and Income Polarization," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(3), pages 422-439, September.
    16. Oded Stark & Walter Hyll, 2011. "On the Economic Architecture of the Workplace: Repercussions of Social Comparisons among Heterogeneous Workers," Journal of Labor Economics, University of Chicago Press, vol. 29(2), pages 349-375.
    17. Alain Cohn & Ernst Fehr & Lorenz Goette, 2013. "Fair wages and effort provision: Combining evidence from the lab and the field," ECON - Working Papers 107, Department of Economics - University of Zurich.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona School of Economics.
    2. Antonio Cabrales, 2010. "The causes and economic consequences of envy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(4), pages 371-386, September.
    3. Cabrales, Antonio & Calvó-Armengol, Antoni, 2008. "Interdependent preferences and segregating equilibria," Journal of Economic Theory, Elsevier, vol. 139(1), pages 99-113, March.
    4. Antonio Cabrales & Antoni Calvó, 2002. "Social preferences and skill segregation," Economics Working Papers 629, Department of Economics and Business, Universitat Pompeu Fabra.
    5. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series 1282, CESifo.
    6. Ederer, Florian & Patacconi, Andrea, 2010. "Interpersonal comparison, status and ambition in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 75(2), pages 348-363, August.
    7. Romina Boarini & Jean-François Laslier & Stéphane Robin, 2009. "Interpersonal comparisons of utility in bargaining: evidence from a transcontinental ultimatum game," Theory and Decision, Springer, vol. 67(4), pages 341-373, October.
    8. Klaus M. Schmidt, 2011. "Social Preferences and Competition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 207-231, August.
    9. Đula, Ivan & Größler, Andreas, 2021. "Inequity aversion in dynamically complex supply chains," European Journal of Operational Research, Elsevier, vol. 291(1), pages 309-322.
    10. Englmaier, Florian & Wambach, Achim, 2010. "Optimal incentive contracts under inequity aversion," Games and Economic Behavior, Elsevier, vol. 69(2), pages 312-328, July.
    11. Binmore, Ken & Shaked, Avner, 2010. "Experimental economics: Where next?," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 87-100, January.
    12. Inés Macho-Stadler & David Pérez-Castrillo, 2018. "Moral hazard: Base models and two extensions," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 16, pages 453-485, Edward Elgar Publishing.
    13. Charness, Gary & Rabin, Matthew, 2005. "Expressed preferences and behavior in experimental games," Games and Economic Behavior, Elsevier, vol. 53(2), pages 151-169, November.
    14. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute of Labor Economics (IZA).
    15. Bereby-Meyer, Yoella & Niederle, Muriel, 2005. "Fairness in bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 56(2), pages 173-186, February.
    16. Brice Corgnet & Brian Gunia & Roberto Hernán González, 2021. "Harnessing the power of social incentives to curb shirking in teams," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(1), pages 139-167, February.
    17. Ponti, Giovanni & Cabrales, Antonio & Miniaci, Raffaele & Piovesan, Marco, 2007. "An experiment on markets and contracts : do social preferences determine corporate culture?," UC3M Working papers. Economics we072010, Universidad Carlos III de Madrid. Departamento de Economía.
    18. Stahl, Dale O. & Haruvy, Ernan, 2008. "Level-n bounded rationality in two-player two-stage games," Journal of Economic Behavior & Organization, Elsevier, vol. 65(1), pages 41-61, January.
    19. Güth, Werner & Kocher, Martin G., 2014. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 396-409.
    20. Brice Corgnet, 2018. "Rac(g)e Against the Machine? Social Incentives When Humans Meet Robots," Post-Print halshs-01984467, HAL.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bge:wpaper:181. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Bruno Guallar (email available below). General contact details of provider: https://edirc.repec.org/data/bargses.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.