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Social Preferences, Skill Segregation and Wage Dynamics

Author

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  • Cabrales Goitia Antonio

    (UNIVERSITY CARLOS III OF MADRID)

  • Calvó-Armengol Antoni

    (UNIVERSITY CARLOS III OF MADRID)

  • Pavoni Nicola

    (POMPEU FABRA UNIVERSITY AUTONOMOUS UNIVERSITY OF BARCELONA UNIVERSITY COLLEGE LONDON)

Abstract

We study the earning structure and the equilibrium assignment of workers to firms in a model where workers have social preferences and skills are perfectly substitutable in production. We allow firms to offer long-term 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 firm 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-term 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 an dwage non-monotonicity.

Suggested Citation

  • Cabrales Goitia Antonio & Calvó-Armengol Antoni & Pavoni Nicola, 2007. "Social Preferences, Skill Segregation and Wage Dynamics," Working Papers 201053, Fundacion BBVA / BBVA Foundation.
    • Handle: RePEc:fbb:wpaper:201053
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    Cited by:

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    2. Raphaël Soubeyran, 2019. "Technology adoption and pro-social preferences," CEE-M Working Papers halshs-02291905, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    3. Bierbrauer, Felix & Netzer, Nick, 2016. "Mechanism design and intentions," Journal of Economic Theory, Elsevier, vol. 163(C), pages 557-603.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. Cabrales, Antonio & Calvó-Armengol, Antoni, 2008. "Interdependent preferences and segregating equilibria," Journal of Economic Theory, Elsevier, vol. 139(1), pages 99-113, March.
    9. 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.
    10. 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.
    11. 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.
    12. Pedro Rey‐Biel, 2008. "Inequity Aversion and Team Incentives," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 297-320, June.
    13. Antonio Cabrales & Antoni Calvó-Armengol, 2005. "Aversion to Inequality and Segregating Equilibria," Working Papers 177, Barcelona School of Economics.
    14. Battisti, Michele, 2015. "Present-biased preferences and optimal compensation schedules: a note," MPRA Paper 64818, University Library of Munich, Germany.
    15. 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.
    16. Amir Habibi, 2023. "Pay Transparency in Organizations," Rationality and Competition Discussion Paper Series 395, CRC TRR 190 Rationality and Competition.
    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.

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    More about this item

    Keywords

    Contract theory; mechanism design; envy; social preferences; gradual promotions; dynamic wage structure.;
    All these keywords.

    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

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