Faculty of Economics and Business Administration Publications Database

Social Preferences, Sorting, and Competition

Volume: 114
Number: 3
Pages: 780 - 807
Month: September
Link External Source: Online Version
Year: 2012
Keywords: Envy; Labor Markets; Organizations; Self-selection
Abstract: n this paper, I investigate how an increase in competition for workers influences the impact of social preferences on labor-market outcomes. By sorting themselves into firms with homogeneous work forces, workers can ensure that they suffer less from social comparisons. Competition promotes choice and thus facilitates sorting. However, competition also boosts rent differences in the labor market, because firms cannot curb internal inequity among its employees without losing workers to competitors. To reduce their exposure to social comparisons, workers might engage in inefficient sorting into unemployment. Consequently, social preferences can have strong effects (i.e., unemployment) in a competitive labor market, whereas they only have a slight impact on labor-market outcomes in a monopsony.