Fairness and Frictions The Impact of Unequal Raises on Quit Behavior

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 marke...

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Bibliographic Details
Published inThe American economic review Vol. 109; no. 2; pp. 620 - 663
Main Authors Dube, Arindrajit, Giuliano, Laura, Leonard, Jonathan
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.02.2019
Subjects
Discontinuity
Job satisfaction
Monopsony
Peers
Raises
Resignations
Retailing industry
Wages & salaries
United States > US
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Summary: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.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20160232