RECIPROCAL FAIRNESS AND NONCOMPENSATING WAGE DIFFERENTIALS

In this paper we report the results of a series of competitive market experiments in which, according to competitive theory, noncompensating wage differentials should not occur. Contrary to this prediction the evidence shows a stable pattern of noncompensating wage differentials: The higher the profits of a firm from the employment of a worker, the higher are its wage offers. Moreover, the higher the wage paid, the h igher is workers' effort level. Due to workers' reciprocal behaviour, firms at all profitability levels pay significantly positive job rents .