A Behavioral Account of the Labor Market: The Role of Fairness Concerns

Ernst Fehr, Lorenz Götte () and Christian Zehnder
Additional contact information
Lorenz Götte: National University of Singapore
Authors registered in the RePEc Author Service: Lorenz Goette

No 3901, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper, we argue that important labor market phenomena can be better understood if one takes (i) the inherent incompleteness and relational nature of most employment contracts and (ii) the existence of reference-dependent fairness concerns among a substantial share of the population into account. Theory shows and experiments confirm, that even if fairness concerns were only to exert weak effects in one-shot interactions, repeated interactions greatly magnify the relevance of such concerns on economic outcomes. We also review evidence from laboratory and field experiments examining the role of wages and fairness on effort, derive predictions from our approach for entry-level wages and incumbent workers' wages, confront these predictions with the evidence, and show that reference-dependent fairness concerns may have important consequences for the effects of economic policies such as minimum wage laws.

Keywords: effort; wages; contracts; fairness; experiments (search for similar items in EconPapers)
JEL-codes: C7 D00 D2 D8 J2 L2 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2008-12
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-lab
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Published - published in: Annual Review of Economics, 2009, 1, 355 - 384

Downloads: (external link)
https://docs.iza.org/dp3901.pdf (application/pdf)

Related works:
Journal Article: A Behavioral Account of the Labor Market: The Role of Fairness Concerns (2009)
Working Paper: A behavioral account of the labor market: the role of fairness concerns (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp3901

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().