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date: 20 November 2019

Abstract and Keywords

This article investigates the effects of others' negotiated outcomes on our own bargaining behavior in labor negotiations. The role of relative wages has important implications for the design of wage schemes in firms. It is necessary to evaluate the impact of wage comparisons in environments that allow for multiple and potentially competing fairness norms. Wage inequality has detrimental effects on real or hypothetical effort exertion in a variety of settings. There is also a significant interaction between competing fairness standards and the acceptance of unequal outcomes. Contrary to strict payoff maximization, workers generally care about their own pay and their standings relative to other workers. So far, the literature does not provide strong guidance about the role of transparency and the endogenous emergence of reference points.

Keywords: bargaining, labor negotiations, relative wages, wage inequality, fairness standards, transparency, wage schemes, firms

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