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Do wage cuts damage work morale? Evidence from a natural field experiment

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  • Sebastian Kube
  • Michel André Maréchal
  • Clemens Puppe

Abstract

Employment contracts are often incomplete, leaving many responsibilities subject to workers’ discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20 percent. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 471.

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Date of creation: Jan 2010
Date of revision: Oct 2011
Handle: RePEc:zur:iewwpx:471

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Keywords: Morale; reciprocity; gift exchange; field experiment;

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Citations

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Cited by:
  1. Charness, Gary & Masclet, David & Villeval, Marie Claire, 2013. "The Dark Side of Competition for Status," University of California at Santa Barbara, Economics Working Paper Series qt3858888w, Department of Economics, UC Santa Barbara.
  2. Baumann, Florian & Friehe, Tim & Grechenig, Kristoffel, 2011. "A note on the optimality of (even more) incomplete strict liability," International Review of Law and Economics, Elsevier, Elsevier, vol. 31(2), pages 77-82, June.
  3. Bradler, Christiane & Dur, Robert & Neckermann, Susanne & Non, Arjan, 2014. "Employee Recognition and Performance: A Field Experiment," IZA Discussion Papers 8311, Institute for the Study of Labor (IZA).
  4. Morten Hedegaard & Jean-Robert Tyran, 2014. "The Price of Prejudice," Discussion Papers 14-05, University of Copenhagen. Department of Economics.
  5. Ernst Fehr & Michael Powell & Tom Wilkening, 2014. "Handing Out Guns at a Knife Fight: Behavioral Limitations of Subgame-Perfect Implementation," CESifo Working Paper Series 4948, CESifo Group Munich.
  6. Matthieu Chemin & Joost DeLaat & André Kurmann, 2011. "Reciprocity in Labor Relations: Evidence from a Field Experiment with Long-Term Relationships," Cahiers de recherche, CIRPEE 1127, CIRPEE.
  7. Abeler, Johannes & Altmann, Steffen & Goerg, Sebastian & Kube, Sebastian & Wibral, Matthias, 2011. "Equity and Efficiency in Multi-Worker Firms: Insights from Experimental Economics," IZA Discussion Papers 5727, Institute for the Study of Labor (IZA).
  8. Currie, Janet & Lin, Wanchuan & Meng, Juanjuan, 2013. "Social networks and externalities from gift exchange: Evidence from a field experiment," Journal of Public Economics, Elsevier, Elsevier, vol. 107(C), pages 19-30.
  9. Florian Englmaier & Stephen G. Leider, 2012. "Managerial Payoff and Gift Exchange in the Field," CESifo Working Paper Series 3707, CESifo Group Munich.
  10. Florian Baumann & Tim Friehe & Kristoffel Grechenig, 2010. "Switching Consumers and Product Liability: On the Optimality of Incomplete Strict Liability," Working Paper Series of the Max Planck Institute for Research on Collective Goods, Max Planck Institute for Research on Collective Goods 2010_03, Max Planck Institute for Research on Collective Goods.
  11. Hammermann, Andrea & Mohnen, Alwine, 2012. "Who Benefits from Benefits? Empirical Research on Tangible Incentives," IZA Discussion Papers 6284, Institute for the Study of Labor (IZA).
  12. Smith, Jennifer C, 2013. "Pay Growth, Fairness and Job Satisfaction: Implications for Nominal and Real Wage Rigidity," CAGE Online Working Paper Series, Competitive Advantage in the Global Economy (CAGE) 130, Competitive Advantage in the Global Economy (CAGE).
  13. Sabrina Jeworrek & Vanessa Mertins, 2014. "When Pay Increases are Not Enough: The Economic Value of Wage Delegation in the Field," IAAEU Discussion Papers, Institute of Labour Law and Industrial Relations in the European Union (IAAEU) 201408, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  14. Kube, Sebastian & Maréchal, Michel André & Puppe, Clemens, 2011. "The currency of reciprocity - gift-exchange in the workplace," Working Paper Series in Economics 25, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
  15. David Masclet & Emmanuel Peterle & Sophie Larribeau, 2012. "Gender Differences in Competitive and Non Competitive Environments: An Experimental Evidence," Economics Working Paper Archive (University of Rennes 1 & University of Caen), Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS 201236, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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