Barigozzi, Francesca and Cremer, Helmuth (2021) Shining with the stars: competition, screening, and concern for coworkers' quality. TSE Working Paper, n. 21-1257, Toulouse, France

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Abstract

We study how workers’ concern for coworkers’ ability (CfCA) affects competition in the labor market. We consider two firms offering nonlinear contracts to a unit mass of prospective workers. Firms may differ in their marginal productivity, while workers are heterogeneous in their ability (high or low), and in their taste for being employed by any of the two firms. Workers receive a utility premium when employed by the firm hiring the workforce with larger average ability and they suffer a utility loss in the opposite case. These premiums/losses are endogenously determined. When workers’ ability is observable and the difference in firms’ marginal productivities is strictly positive, we show that CfCA increases surplus but it also increases firms’ competition for high-ability workers. As a result, CfCA benefits high-ability workers but is detrimental to firms. In addition, CfCA exacerbates the existing distortion in sorting of high-ability workers to firms: too many workers are hired by the least efficient firm. When ability is not observable, the additional surplus appropriated by high-ability workers is eroded by overincentivization (countervailing incentives) and the more so when CfCA is high. Conversely, high-types’sorting improves when CfCA is low and remains the same when it is high.

Item Type: Monograph (Working Paper)
Language: English
Date: November 2021
Place of Publication: Toulouse, France
Uncontrolled Keywords: Concern for Coworkers' Quality, Competition, Screening, Sorting
JEL Classification: D82 - Asymmetric and Private Information
L13 - Oligopoly and Other Imperfect Markets
M54 - Labor Management (team formation, worker empowerment, job design, tasks and authority, work arrangemetns, job satisfaction)
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 09 Nov 2021 13:20
Last Modified: 13 Feb 2024 09:00
OAI Identifier: oai:tse-fr.eu:126143
URI: https://publications.ut-capitole.fr/id/eprint/43953

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