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Relative concerns at the workplace: on the design of the firm as a social space

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Abstract

This paper analyzes firm organization when social comparisons pervade the setting. We consider a firm employing two types of workers associated with different earnings. We assume that inter-group comparisons impinge significantly on the workers’ sense of wellbeing and on their behavior. Thereby we allow both relative deprivation as well as relative satisfaction sensed from (un)favorable income comparisons to coworkers to affect an individual’s utility and, in turn, skill acquisition. The consideration of relative concerns has several implications for the firm. We find that, next to the skill distribution and the composition of the workforce, output and labor productivity depend on the social environment.

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Notes

  1. Clark et al. (2008) review the importance of relative considerations and explain why increasing real incomes in developed countries are not perceived to increase average happiness. Knight et al. (2009) even find that relative income is more important for individual happiness than actual income.

  2. Note that in both settings profits are zero. That is, \( {\left({h}_s^{\ast }{s}^{\ast}\right)}^{\alpha }{u}^{\ast 1-\alpha }={h}_s^{\ast}\;{w}_s^{\ast }{s}^{\ast }+{w}_u^{\ast }{u}^{\ast } \) and \( {\left({h}_s^{\ast \ast }{s}^{\ast \ast}\right)}^{\alpha }{u}^{\ast \ast 1-\alpha }={h}_s^{\ast \ast}\;{w}_s^{\ast \ast }{s}^{\ast \ast }+{w}_u^{\ast \ast }{u}^{\ast \ast } \).

  3. Note that \( \frac{\partial {h}_s^{\ast \ast \ast }}{\partial \sigma }>0 \) and \( \frac{\partial {h}_s^{\ast \ast \ast }}{\partial \delta }<0 \), suggesting that there is a tension between the amount of human capital acquired, relative deprivation, and relative satisfaction.

  4. As in setting 1 and 2, profits are zero, that is, \( {\left({h}_s^{\ast \ast \ast }{s}^{\ast \ast \ast}\right)}^{\alpha }{u}^{\ast \ast \ast 1-\alpha }={h}_s^{\ast \ast \ast}\;{w}_s^{\ast \ast \ast }{s}^{\ast \ast \ast }+{w}_u^{\ast \ast \ast }{u}^{\ast \ast \ast } \).

  5. Consider the case that α = 0.5 and δ = 1. Then q ∗ < q ∗ ∗ ∗ if σ ≥ 0.056.

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Acknowledgements

The author thanks Luigi Orsenigo and three anonymous reviewers for their insightful comments and suggestions that have lead to several improvements in the paper.

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  1. Halle Institute for Economic Research, Kleine Maerkerstrasse 8, D-06108, Halle, Germany

    Walter Hyll

  2. Danube University Krems, Krems, Austria

    Walter Hyll

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Correspondence to Walter Hyll.

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Hyll, W. Relative concerns at the workplace: on the design of the firm as a social space. J Evol Econ 28, 245–264 (2018). https://doi.org/10.1007/s00191-017-0535-3

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