Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/45469
Authors: 
Hyll, Walter
Stark, Oded
Year of Publication: 
2011
Series/Report no.: 
University of Tübingen working papers in economics and finance 6
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.
Subjects: 
Social comparisons
Heterogeneous workforce
Relative deprivation
Effort exertion
Earnings gap
Earnings compression
JEL: 
D01
D21
J22
J24
J31
M54
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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