Cultural Diversity, Status Concerns and the Organization of Work

41 Pages Posted: 15 Mar 2001

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics; Tinbergen Institute

Yoram Weiss

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: February 17, 2005

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. To understand the implications of such diversity in status considerations on wages, contracts, sorting, and output we use a standard principal agent framework in which firms consist of two workers and a principal. First, we find that, in equilibrium, firms mix workers with different status concerns. Second, although workers may have the same productivity, equilibrium will generate a dispersion in (expected) wages, and workers with status concerns will have more high-powered incentives, work more and earn more than workers who do not care about status. Third, we find that a more diverse workforce can increase the total output of the economy. This increase in output is a result of the higher effort exerted by the status minded workers that offsets the reduction in effort by those who do not care about status.

Keywords: Competitive preferences, Incentives, Social Interaction, Wage Dispersion

JEL Classification: D20, I20, J31, J33

Suggested Citation

Hvide, Hans and Fershtman, Chaim and Weiss, Yoram, Cultural Diversity, Status Concerns and the Organization of Work (February 17, 2005). Available at SSRN: https://ssrn.com/abstract=262510 or http://dx.doi.org/10.2139/ssrn.262510

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7167 (Phone)
+972 3 640 9908 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Yoram Weiss

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9715 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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