Reciprocal fairness and noncompensating wage differentials

In this paper we report the results of a series of competitive market experiments in which, according to competitive theory, noncompensating wage differentials should not occur. Contrary to this prediction the evidence shows a stable pattern of noncompensating wage differentials: The higher the profits of a firm from the employment of a worker, the higher are its wage offers. Moreover, the higher the wage paid, the higher is workers' effort level. Due to workers' reciprocal behaviour, firms at all profitability levels pay significantly positive job rents.