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Retracting a Gift: How Does Employee Effort Respond to Wage Reductions?

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  • Darin Lee
  • Nicholas G. Rupp

Abstract

Since the days of Henry Ford, employers have argued that higher pay induces employees to provide additional effort. While the converse is also thought to be true, there is little empirical evidence testing this hypothesis. Not only are significant company-wide pay cuts rarely observed in practice but measures of employee effort are typically difficult to quantify. This article examines the effort responses of U.S. commercial airline pilots following a recent series of large, permanent pay cuts. Using airline on-time performance as proxy for unobservable pilot effort, we find only limited support for the hypothesis that pay cuts lower employee effort.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/522906
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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 25 (2007)
Issue (Month): ()
Pages: 725-761

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Handle: RePEc:ucp:jlabec:v:25:y:2007:p:725-761

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Web page: http://www.journals.uchicago.edu/JOLE/

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Cited by:
  1. Yang, Sheng-Ping & DeBeaumont, Ronald, 2010. "Pay as incentive or pay as reward? The case of Taiwan," Journal of Asian Economics, Elsevier, vol. 21(1), pages 76-86, February.
  2. Brandes, Leif & Franck, Egon, 2012. "Social preferences or personal career concerns? Field evidence on positive and negative reciprocity in the workplace," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 925-939.

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