The role of employment in the lives of many U.S. workers and their families is more than just a way to provide for oneself and one’s loved ones. Jobs are shaped by both social networks and social norms that influence decision-making. Different occupations come with varying social status. And our daily work can deeply affect our well-being through shaping stress and associated health effects. These are just a few of many other characteristics that make labor so unique in the economy.

Across these different attributes of employment, it is clear that an understanding of the role of dignity and empowerment at work is a key economic question that has been underexplored in the field of economics. Yet research from other fields and interdisciplinary work can provide some critical insights to guide U.S. policymakers in promoting good jobs, in which workers have both power and dignity at work while contributing to broadly shared and robust economic growth.

In a new Equitable Growth working paper, titled “Power and Dignity in the Low-Wage Labor Market: Theory and Evidence from Wal-Mart Workers,” Arindrajit Dube of University of Massachusetts Amherst and Suresh Naidu and Adam Reich of Columbia University bring insights from sociological research applied to economics methods to dig into precisely what dignity at work means and how it shapes job quality for low-wage workers at the notoriously low-road employer Walmart Inc. The researchers are interested in how subjective perceptions of dignity at work are a workplace amenity, similar to other job characteristics, and how job characteristics—including dignity, as well as standard benefits such as paid time off—are valued as substitutes or complements to each other.

Underlying these questions are questions about how power imbalances within workplaces lead to inefficiencies where in-demand job characteristics are undersupplied in a noncompetitive labor market. And, as noted, the field of economics has a sparse literature on dignity at work.

One notable exception, cited by Dube, Naidu, and Reich, is work by Roland Benabou of Princeton University and Jean Tirole of the Toulouse School of Economics. In their 2009 paper, “Over My Dead Body: Bargaining and the Price of Dignity,” they define dignity as a motivated belief in one’s own productivity, which, in turn, shapes bargaining outcomes between workers and employers. In a bargaining model with dignity, outcomes are different than the equilibrium predicted in simplistic supply-and-demand model with workers maximizing income and employers minimizing costs to maximize profits.

Moving beyond the simplistic economic model where narrowly defined rationality reigns supreme, this subjective belief in one’s own productivity does not mean that workers and employers are, for one reason or another, irrational in their bargaining over wages because neither is solely motivated by maximizing income or minimizing costs. There may be fundamental flaws in either party’s decision-making, to be sure, and these internal belief distortions may lead to efficiency losses because it is difficult to correct for flaws in self-perception.

While it might help to “knock down a peg” the overhyped beliefs of the unproductive worker, for example, there is also a risk of reducing the confidence of productive workers, which would result in them potentially being paid less than the value they create and would reinforce deadweight loss through wage suppression. In an economy with imbalanced information between workers and employers and other power disparities in the bargaining process, the latter outcome may be more likely. In these circumstances, policymakers recognizing intrinsic imperfections in these economic dynamics gives them more space to correct them through policymaking, such as by raising the wage floor or enforcing workplace protections.

Read the full article about workplace dignity by Kate Bahn at Washington Center for Equitable Growth.