Status, Relative Pay, and Wage Growth: Evidence from M&A

We use evidence from worker turnover following M&A events to show that workers' choices to exit or leave the firm depend on changes in workers' relative standing, or status, in terms of wage and rank. Our results show that social, rather than pecuniary, preference drives these choices. We also show that social preference varies with reference group. When workers' expected status within a group of co-workers in the same occupation increases, they are less likely to quit. In contrast, when workers' expected status compared to all workers within the same firm increases, they are more likely to quit. Moreover, for workers who lose status during M&A, the loss of social rewards is compensated by faster wage growth, suggesting a market for status. This paper is based on individual-level wage data made available by the former Swedish Employers' Federation (SAF). We are grateful to Ari Hietasalo, Svenskt Näringsliv and Åke Kempe, Svenska Medlingsinstitutet for their extensive and exceptionally expert cooperation in preparing these data for analysis. We thank Robert Frank, Guillermina Jasso, Edward Lazear, Paul Milgrom, Paul Oyer, Dan Quint, Woody Powell, Katherine Shaw, Gary Solon, Steve Tadelis, Michael Waldman, Lise Vesterlund, Yoram Weiss, and participants of seminars at Colgate, Cornell, University of Michigan, NYU, Stanford GSB workshop, SUNY-Albany, SCANCORE seminar at Stanford University, and 2006 AEA meeting for helpful comments and suggestions. We also thank Minjung Park for excellent research assistance. All remaining errors are ours.