Wage Differentials, Fairness, and Social Comparison: An Experimental Study of the Co-Employment of Permanent and Temporary Agency Workers

29 Pages Posted: 7 Jun 2006

See all articles by Dorothea Alewell

Dorothea Alewell

Friedrich-Schiller-University Jena

Andreas Nicklisch

University of Hamburg - School of Business, Economics and Social Sciences; Max Planck Institute for Research on Collective Goods

Date Written: March 2006

Abstract

Recent experimental literature in labor economics shows that fairness concerns make a substantial difference for working decisions. Our study systematically explores how the existence of multiple fairness foci influences wage setting and acceptance thresholds. Particularly, we focus on the effect of horizontal fairness concerns, i.e., the wage comparison among employees. For our experiment, we use an institutional design of wage negotiations among employers, employees and temporary agency workers. Working agencies hire these workers and rent them out to firms. Thereby, we create a heterogeneous background of the labour force. Although temporary agency workers do the same work, typically, they receive lower wages due to the intermediate agency. The results of our laboratory experiments indicate that the availability of information concerning co-employee's wage offers strongly influences the wage set and participants' acceptance of contracts. Whereas the relation of average wages is not influenced by the order of the decisions, the absolute level of wages is dependent on the decisions. We find that temporary agency workers who decide on a wage offer after permanent employees receive a premium in addition to their wages, while permanent employees take a cut in wages if they get their wage offer after temporary workers have decided on their offers. These results are more influenced by self-regarding social comparison preferences than by other-regarding horizontal fairness concerns.

Keywords: Experimental economics, horizontal fairness norms, labour economics, social preferences, vertical fairness norms

JEL Classification: C92, J33, M12, M52

Suggested Citation

Alewell, Dorothea and Nicklisch, Andreas, Wage Differentials, Fairness, and Social Comparison: An Experimental Study of the Co-Employment of Permanent and Temporary Agency Workers (March 2006). MPI Collective Goods Preprint No. 2006/8, Available at SSRN: https://ssrn.com/abstract=906991 or http://dx.doi.org/10.2139/ssrn.906991

Dorothea Alewell (Contact Author)

Friedrich-Schiller-University Jena ( email )

Department of Economics & Business Administration
Carl-Zeiss-Str. 3
07743 Jena
Germany
+49-(0)3641-943130 (Phone)

Andreas Nicklisch

University of Hamburg - School of Business, Economics and Social Sciences ( email )

Von-Melle-Park 5
Hamburg, D-20354
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
49 228 9141679 (Phone)
49 228 9141655 (Fax)

HOME PAGE: http://www.coll.mpg.de/nicklisch.html

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