Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232612 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13860
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Why do some leaders use praise as a means to motivate workers, while other leaders use social punishment? This paper develops a simple economic model to examine how leadership styles depend on the prevailing labor-market conditions for workers. We show that the existence of a binding wage floor for workers (e.g., due to trade union wage bargaining, minimum-wage legislation, or limited-liability protection) can make it attractive for firms to hire a leader who makes use of social punishment. While the use of social punishments generally is socially inefficient, it lessens the need for high bonus pay, which allows the firm to extract rents from the worker. In contrast, firms hire leaders who provide praise to workers only if it is socially efficient to do so. Credible use of leadership styles requires either repeated interaction or a leader with the right social preferences. Only moderately altruistic leaders offer praise, whereas only moderately spiteful leaders employ social punishment. Lastly, we show that when the leaders' and workers' reservation utilities give rise to a bigger income gap between leaders and workers, attracting spiteful leaders becomes relatively less costly and unfriendly leadership becomes more prevalent.
Subjects: 
leadership styles
incentives
motivation
social preferences
labor-market conditions
wage-setting
JEL: 
D2
J3
M5
Document Type: 
Working Paper

Files in This Item:
File
Size
536.89 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.