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Leadership Styles and Labor Market Conditions

Author

Listed:
  • Robert Dur

    (Erasmus University Rotterdam, Tinbergen Institute, 3062 PA Rotterdam, Netherlands; CESifo Munich, 81679 Munich, Germany; Institute of Labor Economics (IZA), 53113 Bonn, Germany)

  • Ola Kvaløy

    (CESifo Munich, 81679 Munich, Germany; University of Stavanger Business School, 4036 Stavanger, Norway)

  • Anja Schöttner

    (Humboldt-Universität zu Berlin, Faculty of Economics and Business Administration, 10099 Berlin, Germany; Center for Economic Policy Research (CEPR), London EC1V 0DX, United Kingdom)

Abstract
Why do some leaders use praise as a means to motivate workers, whereas other leaders use social punishment? This paper develops a simple economic model to examine how leadership styles depend on the prevailing labor market conditions for workers. We show that the existence of a binding wage floor for workers (e.g., due to trade union wage bargaining, minimum wage legislation, or limited-liability protection) can make it attractive for firms to hire a leader who makes use of social punishment. Although the use of social punishments generally is socially inefficient, it lessens the need for high bonus pay, which allows the firm to extract rents from the worker. In contrast, firms hire leaders who provide praise to workers only if it is socially efficient to do so. Credible use of leadership styles requires either repeated interaction or a leader with the right social preferences. In a single-period setting, only moderately altruistic leaders use praise as a motivation tool, whereas only moderately spiteful leaders use social punishment. Lastly, we show that when the leaders’ and workers’ reservation utilities give rise to a bigger income gap between leaders and workers, attracting spiteful leaders becomes relatively less costly and unfriendly leadership becomes more prevalent.

Suggested Citation

  • Robert Dur & Ola Kvaløy & Anja Schöttner, 2022. "Leadership Styles and Labor Market Conditions," Management Science, INFORMS, vol. 68(4), pages 3150-3168, April.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:4:p:3150-3168
    DOI: 10.1287/mnsc.2021.4017
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    Cited by:

    1. Anastasia Danilov & Ju Yeong Hong & Anja Schöttner, 2024. "Strategic Use of Unfriendly Leadership and Labor Market Competition: An Experimental Analysis," Berlin School of Economics Discussion Papers 0042, Berlin School of Economics.
    2. Anastasia Danilov & Ju Yeong Hong & Anja Schöttner, 2024. "Strategic Use of Unfriendly Leadership and Labor Market Competition: An Experimental Analysis," Rationality and Competition Discussion Paper Series 507, CRC TRR 190 Rationality and Competition.

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    More about this item

    Keywords

    leadership styles; incentives; motivation; social preferences; labor market conditions; wage setting;
    All these keywords.

    JEL classification:

    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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