Peter Dürsch () (University of Heidelberg, Department of Economics) Jörg Oechssler () (University of Heidelberg, Department of Economics) Radovan Vadovic () (ITAM, Department of Economics)
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Sick pay is a common provision in most labor contracts. This paper employs an experimental gift-exchange environment to explore two related questions using both managers and undergraduates as subjects. First, do workers reciprocate sick pay in the same way as they reciprocate wage payments? Second, do firms benefit from offering sick pay? Firms may benefit in two different ways: directly, from workers reciprocating higher sick pay with higher efforts; and indirectly, from self-selection of reciprocal workers into contracts with higher sick pay. Our main finding is that the direct effect is rather weak in terms of effort and negative in terms of profits. However, when there is competition among firms for workers, sick pay can become an important advantage. Consequently, competition leads to a higher provision of sick pay relative to a monopsonistic labor market.
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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number
0476.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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Ernst Fehr & Alexander Klein & Klaus M Schmidt, 2007.
"Fairness and Contract Design,"
Econometrica,
Econometric Society, vol. 75(1), pages 121-154, 01.
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Ernst Fehr & Alexander Klein & Klaus M. Schmidt, 2005.
"Fairness and Contract Design,"
Discussion Papers
67, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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