Social Comparisons in Oligopsony

38 Pages Posted: 19 Jun 2017

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Michael Neugart

Technical University of Darmstadt

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Abstract

A large body of evidence suggests that social comparisons matter for workers' valuation of the wage they receive. The consequences of social comparisons in imperfectly competitive labor markets are less well understood. We analyze an oligopsonistic model of the labor market where workers derive (dis-) utility from comparing their own wage with wages paid at other firms. As social comparisons become more prevalent all workers are paid higher wages, the wage distribution becomes more equal, and employment shifts to high productivity firms. Moreover, the total wage bill and output increase, while aggregate profits decline. Overall welfare rises. Our theoretical results have implications for estimating the elasticity of the labor supply curve facing a firm.

Keywords: social comparisons, status seeking, oligopsony, wage distribution, functional income distribution, welfare

JEL Classification: D62, J22, J42

Suggested Citation

Goerke, Laszlo and Neugart, Michael, Social Comparisons in Oligopsony. IZA Discussion Paper No. 10820, Available at SSRN: https://ssrn.com/abstract=2988167

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Michael Neugart

Technical University of Darmstadt ( email )

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Darmstadt, 64289
Germany

HOME PAGE: http://www.vwl3.wi.tu-darmstadt.de

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