Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

63 Pages Posted: 22 Aug 2018 Last revised: 22 Jul 2022

See all articles by Arindrajit Dube

Arindrajit Dube

University of Massachusetts Amherst

Laura Giuliano

University of California, Berkeley

Jonathan S. Leonard

University of California, Berkeley - Finance Group; National Bureau of Economic Research (NBER)

Date Written: August 2018

Abstract

We analyze how separations responded to arbitrary differences in own and peer wages at a large U.S. retailer. Regression-discontinuity estimates imply large causal effects of own wages on separations, and on quits in particular. However, this own-wage response could reflect comparisons either to market wages or to peer wages. Estimates using peer-wage discontinuities show large peer-wage effects and imply the own-wage separation response mostly reflects peer comparisons. The peer effect is driven by comparisons with higher-paid peers—suggesting concerns about fairness. Separations appear fairly insensitive when raises are similar across peers—suggesting search frictions and monopsony are relevant in this low-wage sector.

Suggested Citation

Dube, Arindrajit and Giuliano, Laura and Leonard, Jonathan S., Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior (August 2018). NBER Working Paper No. w24906, Available at SSRN: https://ssrn.com/abstract=3236709

Arindrajit Dube (Contact Author)

University of Massachusetts Amherst ( email )

Laura Giuliano

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Jonathan S. Leonard

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
510-642-7048 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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