Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior
Arindrajit Dube, Laura Giuliano, Jonathan Leonard
American Economic Review · 2019 · Volume 109 · Issue 2
Abstract
We analyze how separations responded to arbitrary differences in own and peer wages at a large US 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.
Keywords
Equity, Justice, Inequality, and Other Normative Criteria and Measurement, Wage Level and Structure, Wage Differentials, Monopsony, Segmented Labor Markets, Job, Occupational, and Intergenerational Mobility, Promotion, Retail and Wholesale Trade, e-Commerce
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