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Non-Competitive Wage-Setting as a Cause of Unfriendly and Inefficient Leadership

Author

Listed:
  • Robert (A.J.) Dur

    (Erasmus University Rotterdam, CESifo Munich, IZA Bonn)

  • Ola Kvaloy

    (University of Stavanger Business School, Norwegian School of Economics, CESifo Munich)

  • Anja Schottner

    (Humboldt-Universitat zu Berlin)

Abstract
This paper develops a simple economic model to examine how leadership styles in organizations depend on the prevailing wage-setting conditions for workers. In particular, we examine a leader who can -- in addition to the use of monetary incentives -- motivate a worker by adopting leadership styles that differ in their non-monetary consequences for the worker's well-being. Some leadership styles produce non-monetary benefits for workers (such as those involving the provision of praise to high-performing workers), other styles impose non-monetary costs (such as those involving social punishment for low performers). We show that leaders never use the latter type of leadership when the worker is hired in a competitive labor market. In contrast, in labor markets with non-competitive wage-setting (e.g., in the presence of trade union bargaining or minimum wage legislation) leaders sometimes do use the 'unfriendly' style, and the more so the worse the worker's labor market prospects are. We show that this is socially inefficient. 'Friendly' leadership styles are always adopted when they are socially efficient.

Suggested Citation

  • Robert (A.J.) Dur & Ola Kvaloy & Anja Schottner, 2018. "Non-Competitive Wage-Setting as a Cause of Unfriendly and Inefficient Leadership," Tinbergen Institute Discussion Papers 18-094/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20180094
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    File URL: https://papers.tinbergen.nl/18094.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    leadership styles; incentives; motivation; wage-setting;
    All these keywords.

    JEL classification:

    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics

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