Skip to main content

Advertisement

SpringerLink
Log in

Do Good Job Conditions Matter for Wages and Productivity? Theory and Evidence from Latin America

  • Published:
Applied Research in Quality of Life Aims and scope Submit manuscript

Abstract

Based on Akerlof and Kranton (2005) In Journal of Economic Perspectives, 19(1), 9–32, who argue that group identity and social norms influence individual preferences towards work effort, a model is developed to understand why firms create good job conditions, taking into account the cost of implementing them and their impact on wages and productivity. Then, using individual-level data from the Gallup World Poll for 18 Latin American countries, the main predictions of the model are tested using propensity score matching. We find a positive link between good job conditions and wages when there are several simultaneous signals of a good work environment. We conclude that there is a positive payoff of investing in good job conditions for both workers and firms.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. According to Buckingham and Coffman (1999), six of the 12 questions regularly used by the Gallup Organization to assess the work environment have “the strongest links to the most business outcomes” (p. 33, emphasis in the original). They are: “(1) Do I know what is expected for me at work? (2) Do I have the materials and equipment I need to do my work right? (3) Do I have the opportunity to do what I do best every day? (4) In the last 7 days, have I received recognition or praise for good work? (5) Does my supervisor, or someone at work, seem to care about me as a person? (6) Is there someone at who encourages my development?” (pp. 33–34).

  2. The objective function is based on Akerlof and Kranton (2005), p. 14, first equation. The wage equation (Eq. 2) is based on equation 1.20 in Pissarides (2000, p. 17).

  3. For notation, we will use \( {F}_x=\frac{\partial F}{\partial x} \) to denote the first order derivative of F with respect to x. Also, \( {F}_{x,y}=\frac{\partial^2F}{\partial x\ \partial y} \) will be used to denote second order derivatives.

  4. The two necessary conditions for \( \frac{\partial {e}^{*}}{\partial t} \) to be greater than zero are: 1) t − βF e,e (θ, e*) > 0, which is implied by the second order condition of the worker’s utility maximization problem (equation A1 in the appendix); and 2) e Ref  − e * > 0, which is an assumption regarding the size of the exogenous parameter e Ref.

  5. The 18 countries are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela.

  6. Except for the last question, which was included at the request of the Inter-American Development Bank in the Latin American countries questionnaires for the 2007 wave.

  7. We require a continuous outcome variable for the statistical analyses discussed in the results section. The imputation process was carried out by the Center for Distributional, Labor and Social Studies (CEDLAS) at Universidad de la Plata in Argentina. Gasparini et al. (2008) report all the details of the procedure and how it was based on income distributions derived from household surveys for each Latin American country. We do not have the household data necessary to replicate CEDLAS’s procedure. Fortunately, Gasparini et al. (2013) report in a follow-up paper a robustness of their main results to alternative random assignments of income and alternative PPP conversions of the Gallup data (p. 199).

References

  • Akerlof, G. (1982). Labor contracts as partial gift exchange. The Quarterly Journal of Economics, 97(4), 543–569.

    Article  Google Scholar 

  • Akerlof, G., & Kranton, R. (2005). Identity and the economics of organizations. Journal of Economic Perspectives, 19(1), 9–32.

    Article  Google Scholar 

  • Akerlof, G., & Kranton, R. (2010). Identity economics: How our identities shape our work, wages and well-being. Princeton, NJ: Princeton University Press.

  • Baker, G., Gibbons, R., & Murphy, K. (1994). Subjective performance measures in optimal incentive contracts. Quarterly Journal of Economics, 109(4), 1125–1156.

    Article  Google Scholar 

  • Bakker, A., & Schaufeli, W. (2008). Positive organizational behavior: engaged employees in flourishing organizations. Journal of Organizational Behavior, 29(2), 147–154.

    Article  Google Scholar 

  • Bandiera, O., Barankay, I., & Rasul, I. (2011). Field experiments with firms. Journal of Economic Perspectives, 25(3), 63–82.

    Article  Google Scholar 

  • Bartelsman, E., & Doms, M. (2000). Understanding productivity: lessons from longitudinal microdata. Journal of Economic Literature, 38(3), 569–594.

    Article  Google Scholar 

  • Bassi, M., Bacher, G., Negri, L., & Delle Fave, A. (2013). The contribution of job happiness and job meaning to the well-being of workers from thriving and failing companies. Applied Research in Quality of Life, 8(4), 427–448.

    Article  Google Scholar 

  • Becchetti, L., Castriota, S., & Tortia, E. (2013). Productivity, wages and intrinsic motivations. Small Business Economics, 41(2), 379–399.

    Article  Google Scholar 

  • Becker, S., & Ichino, A. (2002). Estimation of average treatment effects based on propensity scores. The Stata Journal, 2(4), 358–377.

    Google Scholar 

  • Bloom, N., & Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. Quarterly Journal of Economics, 122(4), 1351–1408.

    Article  Google Scholar 

  • Bloom, N., & Van Reenen, J. (2011b). Human resource management and productivity. In O. Ashenfelter, D. Card (Eds.), Handbook of labor economics (vol. 4b, pp. 1697–1767). Elsevier.

  • Bloom, N., Mahajan, A., McKenzie, D., & Roberts, J. (2010). Why do firms in developing countries have low productivity? American Economic Review: Papers and Proceedings, 100(2), 619–623.

    Article  Google Scholar 

  • Bloom, N., Eifert, B., Mahajan, A., McKenzie, D., & Roberts, J. (2011a). Does management matter? Evidence from India. Mimeo.

  • Blundell, R., & Costa-Dias, M. (2009). Alternative approaches to evaluation in empirical microeconomics. Journal of Human Resources, 44(3), 565–640.

    Article  Google Scholar 

  • Bruhn, M., Karlan, D., & Schoar, A. (2010). What capital is missing in developing countries? American Economic Review: Papers and Proceedings, 100(2), 629–633.

    Article  Google Scholar 

  • Buckingham, M., & Coffman, C. (1999). First break all the rules: What the world’s greatest managers do differently. New York, NY: Simon and Schuster.

  • Diener, E., Suh, E., Lucas, R., & Smith, H. (1999). Subjective well-being: three decades of progress. Psychological Bulletin, 125(2), 276–302.

    Article  Google Scholar 

  • Fields, G. (2012). Challenges and policy lessons for the growth-employment-poverty nexus in developing countries. IZA Journal of Labor Policy, 1(1), 1–24.

    Article  Google Scholar 

  • Gasparini, L., Sosa-Escudero, W., Marchionni, M., & Olivieri, S. (2008). Income, deprivation, and perceptions in Latin America and the Caribbean: New evidence from the Gallup World Poll. CEDLAS. Universidad Nacional de la Plata.

  • Gasparini, L., Sosa-Escudero, W., Marchionni, M., & Oliveri, S. (2013). Multidimensional poverty in Latin American and the Caribbean: new evidence from the Gallup World Poll. Journal of Economic Inequality, 11(2), 195–214.

    Article  Google Scholar 

  • Gibbons, R., & Katz, L. (1992). Does unmeasured ability explain inter-industry wage differentials? Review of Economic Studies, 59(3), 515–535.

    Article  Google Scholar 

  • Harter, J., & Creglow, A. (1999). A meta-analysis and utility analysis of the relationship between core employee opinions and business outcomes. Excerpt in Buckingham, M., Coffman, C., 1999. First Break All the Rules: What the World’s Greatest Managers Do Differently. Simon and Schuster.

  • Harter, J., Schmidt, F., & Keyes, C. (2002). Well-being in the workplace and its relationship to business outcomes: a Review of the Gallup studies. In C. Keyes, J. Haidt (Eds.), Flourishing: Positive psychology and the life well-lived, 1st edn. American Psychological Association.

  • Heckman, J., Ichimura, H., & Todd, P. (1998). Matching as an econometric evaluation estimator. The Review of Economic Studies, 65(2), 261–294.

    Article  Google Scholar 

  • Holmstrom, B., & Milgrom, P. (1991). Multitask principal-agent analyses: incentive contracts, asset ownership, and job design. Journal of Law, Economics, and Organization, 7, 24–52.

    Article  Google Scholar 

  • Judge, T., & Watanabe, S. (1993). Another look at the job satisfaction – life satisfaction relationship. Journal of Applied Psychology, 78(6), 939–948.

    Article  Google Scholar 

  • Kahneman, D. (1973). Attention and effort, 1st edn. Prentice Hall.

  • Kahneman, D., & Krueger, A. (2006). Developments in the measurement of subjective well-being. Journal of Economic Perspectives, 20(1), 3–24.

    Article  Google Scholar 

  • Keyes, C., & Haidt, J. (Eds.) (2002). Flourishing: Positive psychology and the life well-lived, 1st edn. American Psychological Association.

  • Lazear, E., & Shaw, K. (2007). Personnel economics: the economist’s view of human resources. Journal of Economic Perspectives, 21(4), 91–114.

    Article  Google Scholar 

  • Leuven, E., & Sianesi, B. (2003). PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing. Available at: http://ideas.repec.org/c/boc/bocode/s432001.html. Version 3.1.5.

  • Luthans, F. (2002). The need for and meaning of positive organizational behavior. Journal of Organizational Behavior, 23(6), 695–706.

    Article  Google Scholar 

  • Luthans, F., & Youssef, C. (2007). Emerging positive organizational behavior. Journal of Management, 33(3), 321–349.

    Article  Google Scholar 

  • Osborne, M., & Rubinstein, A. (1994). A course in game theory, 1st edn. MIT Press.

  • Pagés, C. (Ed.) (2010). The age of productivity: Transforming economies from the bottom up. Development in the Americas Series. Inter-American Development Bank and Palgrave-Macmillan.

  • Penney, L., & Spector, P. (2005). Job stress, incivility, and counterproductive work behavior (CWB): the moderating role of negative affectivity. Journal of Organizational Behavior, 26(7), 777–796.

    Article  Google Scholar 

  • Pissarides, C. (2000). Equilibirum unemployment theory, 2nd edn. MIT press.

  • Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 37(1), 7–63.

    Article  Google Scholar 

  • Ritter, J., & Anker, R. (2002). Good jobs, bad jobs: workers’ evaluations in five countries. International Labour Review, 141(4), 331–358.

    Article  Google Scholar 

  • Robertson, R., Brown, D., Pierre, G., & Sánchez-Puerta, L. (Eds.). (2009). Globalization, wages, and the quality of jobs: Five country studies. Washington: The World Bank.

    Google Scholar 

  • Russo, G. (2012). Job and life satisfaction among part-time and full-time workers: the “identity” approach. Review of Social Economy, 70(3), 315–343.

    Article  Google Scholar 

  • Shapiro, C., & Stiglitz, J. (1984). Equilibrium unemployment as a worker discipline device. American Economic Review, 74(3), 433–444.

    Google Scholar 

  • Sirgy, M., Reilly, N., Wu, J., & Efraty, D. (2008). A work-life identity model of well-being: towards a research agenda linking Quality-of-Work-Life (QWL) programs with Quality of Life (QOL). Applied Research in Quality of Life, 3(3), 181–202.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. School of Economics and Finance, EAFIT University, Carrera 49 N° 7 Sur-50, Medellin, Antioquia, Colombia

    Juan Chaparro

  2. Center for International Development, Harvard University, 79 JFK Street, Cambridge, MA, 02138, USA

    Eduardo Lora

Authors
  1. Juan Chaparro
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Eduardo Lora
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Juan Chaparro.

Additional information

We thank Daniel Shek (Editor in Chief) and two anonymous referees for suggestions that helped improve this paper substantially. We are grateful to Paulo Bastos, Marc Bellemare, Matias Busso, Elizabeth Davis, Ed Diener, Johanna Fajardo-Gonzalez, Carol Graham, James Harter, Daniel Lederman, Aine McCarthy, Colleen Manchester, Andrew Oswald, Sergio Prada, Joseph Ritter, Mariano Rojas and Aaron Sojourner for their comments and suggestions. We received valuable feedback from participants at the 18th LACEA Meeting (Mexico City) and the 11th Midwest International Development Conference (Minneapolis). Editorial revision by John Dunn Smith, Myriam Escobar-Genes and Maria Clara Gutierrez Duvaltier is acknowledged. All mistakes are our own.

Appendix – Second order condition for the worker’s problem and properties of the optimal effort function

Appendix – Second order condition for the worker’s problem and properties of the optimal effort function

The second order condition for the worker’s problem, using Eq. 4 as a starting point, is the following:

$$ \beta {F}_{e,e}\left(\theta, {e}^{*}\right)-t<0\kern1.25em \iff \kern0.75em 0<t-\beta {F}_{e,e}\left(\theta, {e}^{*}\right) $$
(A1)

which will hold given our assumptions about the worker’s bargaining power and the diminishing marginal productivity of effort.

Comparative statics of the optimal effort function (e *) are obtained by taking the corresponding derivatives from the worker’s first order condition (Eq. 4).

  • Worker’s bargaining power, \( \beta :\ {F}_e\left(\theta, {e}^{*}\right)+\beta {F}_{e,e}\left(\theta, {e}^{*}\right)\frac{\partial {e}^{*}}{\partial \beta }-t\frac{\partial {e}^{*}}{\partial \beta }=0 \)

    $$ \Rightarrow \frac{\partial {e}^{*}}{\partial \beta }=\frac{F_e\left(\theta, {e}^{*}\right)}{\left[t-\beta {F}_{e,e}\left(\theta, {e}^{*}\right)\right]}>0 $$

  • Worker’s human capital, \( \theta :\kern0.75em \beta \left[{F}_{e,\theta}\left(\theta, {e}^{*}\right)+{F}_{e,e}\left(\theta, {e}^{*}\right)\frac{\partial {e}^{*}}{\partial \theta}\right]-t\frac{\partial {e}^{*}}{\partial \theta }=0 \)

    $$ \Rightarrow \frac{\partial {e}^{*}}{\partial \theta }=\frac{\beta {F}_{e,\theta}\left(\theta, {e}^{*}\right)}{\left[t - \beta {F}_{e,e}\left(\theta, {e}^{*}\right)\right]}>0 $$

  • Quality of job conditions, \( t:\kern0.75em \beta {F}_{e,e}\left(\theta, {e}^{*}\right)\frac{\partial {e}^{*}}{\partial t}+{e}^{Ref}-{e}^{*}-t\frac{\partial {e}^{*}}{\partial t}=0 \)

    $$ \Rightarrow \frac{\partial {e}^{*}}{\partial t}=\frac{\left[{e}^{Ref}-{e}^{*}\right]}{\left[t-\beta {F}_{e,e}\left(\theta, {e}^{*}\right)\right]} $$

Therefore, \( \frac{\partial {e}^{*}}{\partial t}>0 \) as long as e Ref > e*.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Chaparro, J., Lora, E. Do Good Job Conditions Matter for Wages and Productivity? Theory and Evidence from Latin America. Applied Research Quality Life 12, 153–172 (2017). https://doi.org/10.1007/s11482-016-9489-0

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11482-016-9489-0

Keywords

JEL Classification

Search

Navigation