Working Paper: CEPR ID: DP3982
Authors: Chaim Fershtman; Hans K. Hvide; Yoram Weiss
Abstract: A well-documented human tendency is to compare outcomes with others, trying to outperform them. These tendencies vary across cultures and among different individuals in a given society. The workplace is an important source for social interaction. The willingness of workers to exert effort depends on the private and social rewards that they receive in the form of wages and esteem. Workers may differ in the importance that they give to status ranking and the reference group to which they compare themselves. We explore the conditions under which, at equilibrium, firms would mix workers with different status concerns. We then discuss the effects of such cultural diversity on wages and show that, for equally productive workers, wages may vary, reflecting the different incentives that firms provide to workers with different social concerns. We show that, under plausible conditions, a more diverse workforce can increase the total output of the economy.
Keywords: Cultural Diversity; Status Concerns; Wage Dispersion; Labor Economics
JEL Codes: J31; J24; D63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mixing of workers with different status concerns (J62) | increased overall effort (D29) |
| increased overall effort (D29) | increased total output (E23) |
| incentives provided by firms (M52) | wage dispersion (J31) |
| diverse workforce (J29) | higher productivity (O49) |
| status-minded workers exert effort (J29) | offsets reduced effort from non-status-minded workers (J29) |