Does it Pay to Be Fair? Evidences from French Firms

We propose a direct evaluation of the determinants of gift exchange practices between French employers and employees, estimating the probabilities to observe productivity increases following upon the settlement of rent-sharing agreements in the firm. Whether we estimate the probability for the employer to propose a rent-sharing agreement or the probability for the employees to raise their effort, we show that there exists an endogeneity bias related to the variable chosen as proxy to express the agents' perception of their opponent's fairness. This result supports the hypothesis that French employers and employees' decisions are influenced by reciprocity concerns. Our results concur with Akerlof & Yellen's fair wage effort hypothesis as an explanation of the persistence of non-compensating wage differentials