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Relative pay, effort, and labor supply

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  • Anat Bracha

    (The Federal Reserve Bank of Boston, USA)

Abstract

Recent studies show that even irrelevant relative pay information—earnings compared to the past or to others—significantly affects workers’ willingness to work (labor supply) and effort. This effect stems mainly from those whose pay compares unfavorably; accordingly, earning less compared to others or less than in the past significantly reduces one’s willingness to work and effort exerted on the job. Comparing favorably, however, has mixed effects—with usually no effect on effort, but positive or no effects on labor supply. Understanding when relative pay increases labor supply and effort can thus help firms devise optimal payment structures.

Suggested Citation

  • Anat Bracha, 2017. "Relative pay, effort, and labor supply," IZA World of Labor, Institute of Labor Economics (IZA), pages 367-367, June.
    • Handle: RePEc:iza:izawol:journl:2017:n:367
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    References listed on IDEAS

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    Cited by:

    1. Werner, Peter, 2023. "Wage negotiations and strategic responses to transparency," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 161-175.

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    More about this item

    Keywords

    relative pay; effort; labor supply; lab experiments; field experiments;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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