Employment and community relations
In this paper, Acemoglu and Wolitzky propose a theoretical model to study the interplay between employment relationships and community interactions among workers and managers. The main findings and arguments are:
- The authors distinguish between “soft” and “tough” employment regimes. In a soft regime, managers pay higher wages, monitor workers less intensively, and engage in workplace favor exchange with workers. In a tough regime, wages are lower, monitoring is more intensive, and there is less favor exchange.
- Both workers and managers exert effort in providing community benefits like keeping the neighborhood clean, participating in civic activities, sharing job information, etc. Their incentives to contribute stem from the threat of losing future employment opportunities (for workers) and being excluded from the community (for both).
- Soft employment relations, by providing higher rents to workers, motivate greater community effort from both workers and managers. Conversely, community engagement motivates soft management practices as managers can be excluded from the community for mistreating workers.
- The model shows that improvements in monitoring technologies, automation/outsourcing opportunities, declines in minimum wages, and increased ability of managers to opt-out of community interactions can shift the economy from a “soft” to a “tough” equilibrium. This leads to more residential segregation, withdrawal from public goods, reduced civic engagement, and intensive workplace monitoring – even though some of these changes may seem efficiency-enhancing.
- Higher productivity can also destabilize the soft equilibrium if it creates stronger scale economies in monitoring.
- The paper documents stylized facts from U.S. commuting zones that higher manager-worker wage inequality is associated with greater residential segregation, more intensive worker monitoring, lower civic engagement (fewer bowling alleys), and more labor complaints – patterns consistent with a shift towards a “tough” equilibrium.
In summary, the paper develops a framework where employment relations and community interactions are complementary, such that changes that improve firm-level efficiency but undermine worker rents can be counterproductive by eroding cooperation in communities as well. The authors argue this mechanism can help explain recent trends in the U.S. like stagnant wages for workers, declining civic engagement, and residential segregation by income.
Employment and Community: Socioeconomic Cooperation and Its Breakdown
Authors: Daron Acemoglu, Alexander Wolitzky
From: MIT
Voluntary minimum wages
Derenoncourt and Weil, in this paper, study the effects of voluntary minimum wage policies adopted by large retailers in the U.S. on their own wages and employment, as well as potential spillover effects on wages at other employers. The authors use data on the wages, employment, and employment flows of thousands of firms, including several large companies that have adopted or raised voluntary minimums in the last 10 years. The anonymized data, they obtained from a large credit bureau, cover over 18 million hourly workers (or 24% of the U.S. total). For information on voluntary minimum wages the authors draw from an inventory maintained by the National Employment Law Project. Their final sample consists of the 20 voluntary minimum wage policies across 5 large retailers–defined as those with employment greater than 150,000 workers nationally. The key findings are:
Effects on the large retailers’ own wages and employment:
- The new voluntary $15 minimum wage led to an increase in hourly wages at the large retailer in the 6 months after adoption.
- Total employment of workers earning under $30/hour rose by 4.62% after adoption of $15 voluntary minimums, driven entirely by reduced separations rather than increased hiring.
- Separation rates fell by around 15% after adoption of $15 voluntary minimums.
Spillover effects on wages at other employers:
- The study finds precise zero spillover effects on wages at other employers in the same local labor markets as the large retailers adopting voluntary minimums. This holds across various definitions of the local labor market.
- Estimated cross-employer wage elasticities with respect to the large retailers’ wage increases are zero, even when focusing on employers with worker flows to/from the large retailers.
Mechanisms behind limited spillovers:
- While hiring from the large retailers fell after their voluntary minimum wage policies, overall hiring rates at other employers did not change, suggesting an ability to substitute toward other sources of new hires.
- This points to a thick market for new hires and limited local labor market frictions that would transmit wage increases across employers.
Voluntary minimum wages
Authors: Ellora Derenoncourt, David Weil
From: Princeton University, Brandeis University
