The statement that individuals care for status and for their position within a hierarchy
has been subject to sparse economic analysis. I check this assertion by analyzing wages
and status in the labor market. The following questions are addressed: Are individuals willing
to pay for status in the labor market? Is a high position in a large firm more valued than a
similarly high position in a small firm? Three alternative concepts of hierarchy will be used: the
prestige of an occupation, based on popular evaluation of its standing; the socio-economic index
of the occupation, based on the characteristics of its workers; the ranking of the worker in the wage
distribution inside the firm. The size of the pond is defined as the diversity (of hierarchical positions)
inside the firm or its number of workers. A remarkable longitudinal linked employer-employee dataset is used.
I find empirical support to the idea that workers care for status as a concept widely understood and shared by
a society, such as the occupational prestige of an occupation, and they are willing to pay for such prestige
in groups with high diversity or inequality in prestige — what seems to matter for the definition of the size
of the pond, when valuing status, is the diversity or inequality of positions inside the firm, and not its size by
itself. Also, the evidence does not lend support to Frank’s (1984, 1985) strict version of search for status, as no
trade-off between wage and rank inside a firm was detected, suggesting that it is not rank inside a firm that
matters, but prestige in overall society.
Presented by:
Ana Rute Cardoso (IZA, Bonn)
Date & time:
March 3, 2008 4:00 pm - March 3, 2008 12:00 am
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