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How Co-Workers Affect Each Other’s Wages

Update Date: Jan 20, 2017 09:47 AM EST
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In labor law, an individual's wages are equivalent to or at par with the individual's skills and fit for the job. By doing a better performance than others in the workplace, the individual can earn added bonuses or benefits. However, a recent study found that a person's wages are not only affected by an individual's performance but also by his or her co-workers.

Previous research examining productivity in the workplace only focused on peer effects in productivity either in a controlled setting (laboratory) or in a real world setting but referring to a specific job role or firm. The study, conducted by a team of researchers from University College London, examined the peer effects in wages in a large local labor market.

The researchers combed through wage records from administrative social security for millions of workers and their co-workers in a large metropolitan area of Germany. The study looked at records for 330 professions over a 15-year period.

The study, published in the journal American Economic Review, found that on average over all occupations, low-skilled occupations feel a larger peer effect on wages. The effect is said to be half the size of those identified in similar studies on productivity. This is caused by the increased in productivity because the worker has to keep up with a high-performing co-worker.

Moreover, the researchers found that work performance improvements due to a high-performing co-worker not only raises the individual's wages but also the quality of work done. In a real world setting, the researchers observed that a good worker rub-off their skills, performance and work quality to co-workers and even improves wages received.

But in the absence of the good worker, the co-workers left behind slide back on their performance and work quality which leads to the stagnation of work performance and wages.

The researchers explain that productivity effect of the good worker is more closely related to peer pressure. And the peer pressure or the peer effect also makes an impact on the workers' wages.

On the other hand, high-skilled occupations are not as affected by peer effects on wages. This is because working practices among high-skilled workers differ from each other. It is also due to the fact that most high-skilled workers don't really have the time and energy needed to fully socialize in their workplaces. In addition, different tasks and goals needed to be achieved are different for every worker employed in high-skilled occupations.

The findings of the study can be applied to different aspects of a company in order to achieve optimal productivity without sacrificing workers' wellbeing. The company can also tailor policies and training targeted to ensure the best options for everyone within the company.

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