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Working more for more and working more for less: Labor supply in the gain and loss domains

Author

Listed:
  • C. Bram Cadsby

    (Department of Economics and Finance, University of Guelph, Guelph ON Canada)

  • Fei Song

    (Ted Rogers School of Management, Ryerson University, Toronto ON Canada)

  • Nick Zubanov

    (University of Konstanz, Konstanz, Germany)

Abstract

We examine the response of labor supply to short-run wage changes with and without a reference wage (RW) that we manipulate experimentally. We find that, in the absence of RW, labor supply increases monotonically with wage. In contrast, when RW is present, people work more both when wages rise and fall relative to RW. These findings suggest a kink in the labor-supply curve, consistent with income targeting by loss-averse individuals. However, the effects of income targeting are sensitive to context: in a treatment where wages could either rise or fall relative to RW, the kink in the labor-supply curve disappears.

Suggested Citation

  • C. Bram Cadsby & Fei Song & Nick Zubanov, 2020. "Working more for more and working more for less: Labor supply in the gain and loss domains," Working Papers 2006, University of Guelph, Department of Economics and Finance.
    • Handle: RePEc:gue:guelph:2020-06
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    More about this item

    Keywords

    labor supply; short-run wage changes; reference wage; loss-aversion; experimental;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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