Social Preferences and Skill Segregation

Abstract

This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable effects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely selfish preferences leads to widespread workplace skill segregation. That is, workers of different abilities tend to work in di¤erent firms, as long as they care somewhat more about the utilities of workers who are close .