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 U.S. 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.
We thank Joshua Angrist, Emily Breza, David Card, Christian Dustmann, Ethan Kaplan, Suresh Naidu, Todd Sørensen and seminar participants at UC Berkeley, UC Irvine, UC Merced, UC Santa Cruz, LSU, MIT, UMass Amherst, UNR, UVA, and the NBER Summer Institute for Personnel Economics for helpful comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Arindrajit Dube & Laura Giuliano & Jonathan Leonard, 2019. "Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior," American Economic Review, vol 109(2), pages 620-663. citation courtesy of