Working Paper: CEPR ID: DP16704
Authors: Francesca Barigozzi; Helmuth Cremer
Abstract: We study how workers' concern for coworkers' ability (CfCA) affects competition in the labor market. We consider two firms offering nonlinear contracts to a unit mass of prospective workers. Firms may differ in their marginal productivity, while workers are heterogeneous in their ability (high or low), and in their taste for being employed by any of the two firms. Workers receive a utility premium when employed by the firm hiring the workforce with larger average ability and they suffer a utility loss in the opposite case. These premiums/losses are endogenously determined.When workers' ability is observable and the difference in firms' marginal productivities is strictly positive, we show that CfCA increases surplus but it also increases firms' competition for high-ability workers. As a result, CfCA benefits high-ability workers but is detrimental to firms. In addition, CfCA exacerbates the existing distortion in sorting of high-ability workers to firms: too many workers are hired by the least efficient firm. When ability is not observable, the additional surplus appropriated by high-ability workers is eroded by overincentivization (countervailing incentives) and the more so when CfCA is high. Conversely, high-types' sorting improves when CfCA is low and remains the same when it is high.
Keywords: concern for coworkers quality; competition; screening; sorting
JEL Codes: D82; L13; M54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| workers' concern for coworkers' ability (cfca) (J54) | total surplus (D46) |
| workers' concern for coworkers' ability (cfca) (J54) | competition for high-ability workers (J29) |
| workers' concern for coworkers' ability (cfca) (J54) | sorting efficiency (C69) |
| competition for high-ability workers (J29) | profits for firms (L21) |
| workers' concern for coworkers' ability (cfca) (J54) | inefficiencies in hiring low-ability workers (J79) |
| workers' concern for coworkers' ability (cfca) (J54) | surplus appropriated by high-ability workers (J24) |
| observable abilities (C90) | sorting high-ability workers (J68) |
| workers' concern for coworkers' ability (cfca) (J54) | empowerment of senior talented applicants (M51) |
| workers' concern for coworkers' ability (cfca) (J54) | struggles of junior applicants (I24) |