Whatʹs wrong with forced wage compression? The fair wage hypothesis redux

In this note we examine a modified version of Akerlof and Yellenʹs [Q. J. Econ. 105 (1990) 255] fair wage hypothesis where individuals care about the wages of workers above as well as below them in the wage distribution. We find that this modified fair wage model is consistent with existing evidence about the reaction of workers and firms to forced wage compression from below.