Vertical and Horizontal Comparisons and Mobility Outcomes: Evidence from the Swedish Microdata

37 Pages Posted: 18 Sep 2015 Last revised: 19 Jul 2016

See all articles by Aleksandra Kacperczyk

Aleksandra Kacperczyk

Massachusetts Institute of Technology (MIT); London Business School

Navid Bazzazian

National Bureau of Economic Research (NBER)

Date Written: September 17, 2015

Abstract

Using employer-employee matched data from Sweden between 2001 and 2008, we test hypotheses designed to assess the contingent nature of the relationship between wage inequality and cross-firm mobility. We propose that the effect of wage inequality depends on whether wage comparisons serve a comparative or a normative function. Our results show that same-level wage comparisons, which serve a primarily comparative goal, increase cross-firm mobility because they induce inequity concerns. By contrast, different-level wage comparisons, which serve a primarily normative goal, decrease cross-firm mobility because they enhance self-motivation. Moreover, we find that that the horizontal-inequality effect is amplified (mitigated) for bottom same-level wage earners, consistent with the notion of envy and relative deprivation. However, the vertical-inequality effect is amplified (mitigated) for top (bottom) different-level wage earners, consistent with the notion of self-motivation. Finally, the impact of vertical and horizontal wage inequality increases with workers’ social similarity. More broadly, the study contributes to our understanding of the contingent nature of wage inequality and mobility.

Suggested Citation

Kacperczyk, Aleksandra and Bazzazian, Navid, Vertical and Horizontal Comparisons and Mobility Outcomes: Evidence from the Swedish Microdata (September 17, 2015). MIT Sloan Research Paper No. 5169-16, Available at SSRN: https://ssrn.com/abstract=2662211 or http://dx.doi.org/10.2139/ssrn.2662211

Aleksandra Kacperczyk (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

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London Business School ( email )

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Navid Bazzazian

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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