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

Arindrajit Dube, Laura Giuliano () and Jonathan Leonard ()

No 9149, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze how quits responded to arbitrary differences in own and peer wages using an unusual feature of a pay raise at a large U.S. retailer. The firm's use of discrete pay steps created discontinuities in raises, where workers earning within 1 cent of each other received new wages that differed by 10 cents. First, we estimate a regression discontinuity (RD) model based on own wages; we find large causal effects of wages on quits, with quit elasticities less than -10. Next, we address whether the overall quit response reflects the impact of comparisons to market wages or to the wages of in-store peers. Here we use a multi-dimensional RD design that includes both a sharp RD in the own wage and a fuzzy RD in the average peer wage. We find that the large quit response mostly reflects relative-pay concerns and not market comparisons. After accounting for peer effects, quits do not appear to be very sensitive to wages – consistent with the presence of significant search frictions. Finally, we find that the relative-pay effect is nonlinear and driven mainly by workers who are paid less than their peers – suggesting concerns about fairness or disadvantageous inequity.

Keywords: peer effects; quits; fairness; search frictions; turnover; regression discontinuity (search for similar items in EconPapers)
JEL-codes: J00 J31 J42 J63 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2015-06
New Economics Papers: this item is included in nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published - published in: American Economic Review, 2019, 109 (2), 620 - 663

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Related works:
Journal Article: Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior (2019)
Working Paper: Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior (2018)
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