IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp16623.html
   My bibliography  Save this paper

The Hidden Costs of Choice in the Labor Market

Author

Listed:
  • Au, Pak Hung

    (Hong Kong University of Science & Technology)

  • Li, King King

    (Shenzhen University)

  • Zhang, Qing

    (Hunan University)

  • Zhu, Rong

    (Flinders University)

Abstract

Freedom of choice is often thought to improve efficiency. We experimentally investigate the effect of giving workers a choice between compensation schemes with and without a CSR component (CSR/NoCSR) on labor market participation decision and work performance, compared to the alternative of exogenous assignment. Classical economic theory suggests that giving workers a choice should not reduce their performance. Our results show that there are hidden costs associated with the right of choice. When a worker is allowed to choose his or her compensation scheme, the labor market participation rate is significantly lower than when the same scheme is exogenously assigned. Work quality is also significantly lower for those who choose CSR, as well as for those who choose no CSR, than for those who are exogenously assigned to the same scheme.We propose a model of signaling with image concerns to explain why the freedom of choice may induce reduced participation and effort exertion of workers.

Suggested Citation

  • Au, Pak Hung & Li, King King & Zhang, Qing & Zhu, Rong, 2023. "The Hidden Costs of Choice in the Labor Market," IZA Discussion Papers 16623, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp16623
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp16623.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fehrler, Sebastian & Kosfeld, Michael, 2014. "Pro-social missions and worker motivation: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 100(C), pages 99-110.
    2. Simonson, Itamar, 1989. "Choice Based on Reasons: The Case of Attraction and Compromise Effects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 16(2), pages 158-174, September.
    3. Briscese, Guglielmo & Feltovich, Nick & Slonim, Robert L., 2021. "Who benefits from corporate social responsibility? Reciprocity in the presence of social incentives and self-selection," Games and Economic Behavior, Elsevier, vol. 126(C), pages 288-304.
    4. Jean Tirole & Roland Bénabou, 2006. "Incentives and Prosocial Behavior," American Economic Review, American Economic Association, vol. 96(5), pages 1652-1678, December.
    5. Stefano DellaVigna & John A. List & Ulrike Malmendier & Gautam Rao, 2022. "Estimating Social Preferences and Gift Exchange at Work," American Economic Review, American Economic Association, vol. 112(3), pages 1038-1074, March.
    6. Roland Bénabou & Jean Tirole, 2010. "Individual and Corporate Social Responsibility," Economica, London School of Economics and Political Science, vol. 77(305), pages 1-19, January.
    7. Roland Benabou & Jean Tirole, 2004. "Willpower and Personal Rules," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 848-886, August.
    8. Jinhua Cui & Hoje Jo & Yan Li, 2015. "Corporate Social Responsibility and Insider Trading," Journal of Business Ethics, Springer, vol. 130(4), pages 869-887, September.
    9. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 437-459.
    10. Lea Cassar, 2019. "Job Mission as a Substitute for Monetary Incentives: Benefits and Limits," Management Science, INFORMS, vol. 65(2), pages 896-912, February.
    11. repec:ner:ucllon:http://discovery.ucl.ac.uk/17678/ is not listed on IDEAS
    12. Daniel Hedblom & Brent Hickman & John List, 2019. "Toward an Understanding of Corporate Social Responsibility: Theory and Field Experimental Evidence," Natural Field Experiments 00675, The Field Experiments Website.
    13. King Li, 2011. "Preference towards control in risk taking: Control, no control, or randomize?," Journal of Risk and Uncertainty, Springer, vol. 43(1), pages 39-63, August.
    14. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 817-869.
    15. Charness, Gary & Cobo-Reyes, Ramón & Sánchez, Ángela, 2016. "The effect of charitable giving on workers’ performance: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 61-74.
    16. Tim Lu & Xia Wei & Kungchi Li, 2015. "Consumer responses to corporate social responsibility programs," Nankai Business Review International, Emerald Group Publishing Limited, vol. 6(4), pages 364-380, November.
    17. Stefano DellaVigna & Devin Pope, 2018. "What Motivates Effort? Evidence and Expert Forecasts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(2), pages 1029-1069.
    18. Ernst Fehr & Holger Herz & Tom Wilkening, 2013. "The Lure of Authority: Motivation and Incentive Effects of Power," American Economic Review, American Economic Association, vol. 103(4), pages 1325-1359, June.
    19. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    20. Fehr, Ernst & Kirchler, Erich & Weichbold, Andreas & Gächter, Simon, 1998. "When Social Norms Overpower Competition: Gift Exchange in Experimental Labor Markets," Journal of Labor Economics, University of Chicago Press, vol. 16(2), pages 324-351, April.
    21. Lea Cassar & Stephan Meier, 2021. "Intentions for Doing Good Matter for Doing Well: The Negative Effects of Prosocial Incentives," The Economic Journal, Royal Economic Society, vol. 131(637), pages 1988-2017.
    22. Benjamin Scheibehenne & Rainer Greifeneder & Peter M. Todd, 2010. "Can There Ever Be Too Many Options? A Meta-Analytic Review of Choice Overload," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 37(3), pages 409-425, October.
    23. Gary Charness & Ramon Cobo-Reyes & Natalia Jimenez & Juan A. Lacomba & Francisco Lagos, 2012. "The Hidden Advantage of Delegation: Pareto Improvements in a Gift Exchange Game," American Economic Review, American Economic Association, vol. 102(5), pages 2358-2379, August.
    24. Sunstein, Cass R., 2015. "Choosing Not to Choose: Understanding the Value of Choice," OUP Catalogue, Oxford University Press, number 9780190231699.
    25. Lea Cassar & Stephan Meier, 2018. "Nonmonetary Incentives and the Implications of Work as a Source of Meaning," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 215-238, Summer.
    26. Mirco Tonin & Michael Vlassopoulos, 2015. "Corporate Philanthropy and Productivity: Evidence from an Online Real Effort Experiment," Management Science, INFORMS, vol. 61(8), pages 1795-1811, August.
    27. Kajackaite, Agne & Sliwka, Dirk, 2017. "Social responsibility and incentives in the lab: Why do agents exert more effort when principals donate?," Journal of Economic Behavior & Organization, Elsevier, vol. 142(C), pages 482-493.
    28. Liang Guo, 2016. "Contextual Deliberation and Preference Construction," Management Science, INFORMS, vol. 62(10), pages 2977-2993, October.
    29. Tanjim Hossain & King King Li, 2014. "Crowding Out in the Labor Market: A Prosocial Setting Is Necessary," Management Science, INFORMS, vol. 60(5), pages 1148-1160, May.
    30. Vanessa C. Burbano, 2016. "Social Responsibility Messages and Worker Wage Requirements: Field Experimental Evidence from Online Labor Marketplaces," Organization Science, INFORMS, vol. 27(4), pages 1010-1028, August.
    31. Gerhards, Leonie, 2015. "The incentive effects of missions—Evidence from experiments with NGO employees and students," European Economic Review, Elsevier, vol. 79(C), pages 252-262.
    32. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
    33. John A. List & Fatemeh Momeni, 2021. "When Corporate Social Responsibility Backfires: Evidence from a Natural Field Experiment," Management Science, INFORMS, vol. 67(1), pages 8-21, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Briscese, Guglielmo & Feltovich, Nick & Slonim, Robert L., 2021. "Who benefits from corporate social responsibility? Reciprocity in the presence of social incentives and self-selection," Games and Economic Behavior, Elsevier, vol. 126(C), pages 288-304.
    2. Non, Arjan & Rohde, Ingrid & de Grip, Andries & Dohmen, Thomas, 2022. "Mission of the company, prosocial attitudes and job preferences: A discrete choice experiment," Labour Economics, Elsevier, vol. 74(C).
    3. Kajackaite, Agne & Sliwka, Dirk, 2020. "Prosocial managers, employee motivation, and the creation of shareholder value," Journal of Economic Behavior & Organization, Elsevier, vol. 172(C), pages 217-235.
    4. Hiller, Victor & Raffin, Natacha, 2020. "Firms’ social responsibility and workers’ motivation at the industry equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 131-149.
    5. Ackfeld, Viola & Ockenfels, Axel, 2021. "Do people intervene to make others behave prosocially?," Games and Economic Behavior, Elsevier, vol. 128(C), pages 58-72.
    6. Cassar, Lea & Armouti-Hansen, Jesper & Dereky, Anna & Engl, Florian, 2021. "Efficiency Wages with Motivated Agents," CEPR Discussion Papers 15723, C.E.P.R. Discussion Papers.
    7. Colleen M. Boland & Corinna Ewelt-Knauer & Julia Schneider, 2022. "The gift that keeps on giving: corporate giving and excessive risk-taking," Journal of Business Economics, Springer, vol. 92(3), pages 355-396, April.
    8. Kesternich, Iris & Schumacher, Heiner & Siflinger, Bettina & Schwarz, Stefan, 2021. "Money or meaning? Labor supply responses to work meaning of employed and unemployed individuals," European Economic Review, Elsevier, vol. 137(C).
    9. Jesper Armouti-Hansen & Lea Cassar & Anna Deréky & Florian Engl, 2020. "Efficiency Wages with Motivated Agents," CESifo Working Paper Series 8474, CESifo.
    10. Nadia Burani, 2021. "No mission? No motivation. On hospitals' organizational form and charity care provision," Health Economics, John Wiley & Sons, Ltd., vol. 30(12), pages 3203-3219, December.
    11. Stein, Caroline & Untertrifaller, Anna, 2020. "The effect of ethical responsibility on performance," MPRA Paper 99176, University Library of Munich, Germany.
    12. Charness, Gary & Cobo-Reyes, Ramón & Sánchez, Ángela, 2016. "The effect of charitable giving on workers’ performance: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 61-74.
    13. Kampkötter, Patrick & Petters, Lea M. & Sliwka, Dirk, 2021. "Employee identification and wages – on the economics of “Affective Commitment”," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 608-626.
    14. Koppel, Hannes & Regner, Tobias, 2019. "What drives motivated agents: The ‘right’ mission or sharing it with the principal?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 83(C).
    15. Barigozzi, Francesca & Burani, Nadia, 2019. "Competition for talent when firms' mission matters," Games and Economic Behavior, Elsevier, vol. 116(C), pages 128-151.
    16. Peter H. Kriss & Roberto Weber, 2013. "Organizational formation and change: lessons from economic laboratory experiments," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 14, Edward Elgar Publishing.
    17. Butschek, Sebastian & González Amor, Roberto & Kampkötter, Patrick & Sliwka, Dirk, 2022. "Motivating gig workers – evidence from a field experiment," Labour Economics, Elsevier, vol. 75(C).
    18. Matthew Amengual & Evan P. Apfelbaum, 2021. "True Motives: Prosocial and Instrumental Justifications for Behavioral Change in Organizations," Management Science, INFORMS, vol. 67(8), pages 5032-5051, August.
    19. Reggiani, Tommaso G. & Rilke, Rainer Michael, 2020. "When Too Good Is Too Much: Social Incentives and Job Selection," IZA Discussion Papers 12905, Institute of Labor Economics (IZA).
    20. Briscese, Guglielmo & Slonim, Robert L. & Feltovich, Nicholas, 2019. "Who Benefits from Corporate Social Responsibility?," Working Papers 2019-18, University of Sydney, School of Economics.

    More about this item

    Keywords

    choice; signaling; image concerns; corporate social responsibility; labor; experiment;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp16623. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.