Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior

Abstract

We analyze how separations responded to arbitrary differences in own and peer wages at a large U.S. retailer.Regression-discontinuity estimates imply large causal effects of own wages on separations, and on quits in particular.However, this own-wage response could reflect comparisons either to market wages or to peer wages.Estimates using peer-wage discontinuities show large peer-wage effects and imply the own-wage separation response mostly reflects peer comparisons.The peer effect is driven by comparisons with higher-paid peers-suggesting concerns about fairness.Separations appear fairly insensitive when raises are similar across peers -suggesting search frictions and monopsony are relevant in this low-wage sector.

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