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Effort and comparison income: Survey and experimental evidence

  • Andrew E. Clark

    (IZA - Institute for the Study of Labor - IZA, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • David Masclet

    (CREM - Centre de Recherche en Economie et Management - CNRS : UMR6211 - Université de Rennes 1 - Université de Caen Basse-Normandie)

  • Marie Claire Villeval

    ()

    (IZA - Institute for the Study of Labor - IZA, GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - École Normale Supérieure (ENS) - Lyon - PRES Université de Lyon - Université Jean Monnet - Saint-Etienne - Université Claude Bernard - Lyon I (UCBL))

This paper combines ISSP survey data and experimental evidence from a gift-exchange game to determine the effect of status or relative income on work effort. We find a strong effect of others' incomes on individual effort decisions in both datasets. The individual's rank in the income distribution has a more powerful effect on effort than does others' average income, suggesting that comparisons are more ordinal than cardinal. We further show that, controlling for own income and income rank, the width of the relevant income distribution matters, with effort increasing in the distance from the bottom of the income distribution. Last, effort is also affected by comparisons over time: those who received higher income offers or had higher income rank in the past exert lower levels of effort for a given current income.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00590552.

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Date of creation: Jan 2006
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Handle: RePEc:hal:psewpa:halshs-00590552
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00590552
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  1. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  2. Bernard Fortin & Guy Lacroix & Marie-Claire Villeval, 2007. "Tax Evasion and Social Interactions," Post-Print halshs-00238448, HAL.
  3. Jeffrey Carpenter & Erika Seki, 2005. "Do Social PreferencesIncrease Productivity? Field experimental evidence from fishermen in Toyoma Bay," Middlebury College Working Paper Series 0515, Middlebury College, Department of Economics.
  4. Ronald G. Cummings & Jorge Martinez-Vazquez & Michael McKee & Benno Torgler, 2007. "Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence," NCER Working Paper Series 12, National Centre for Econometric Research.
  5. Bernard M.S. van Praag & Paul Frijters, 1999. "The measurement of welfare and well-being; the Leyden approach," School of Economics and Finance Discussion Papers and Working Papers Series 071a, School of Economics and Finance, Queensland University of Technology.
  6. Charness, Gary & Kuhn, Peter J., 2004. "Do Co-Workers’ Wages Matter? Theory and Evidence on Wage Secrecy, Wage Compression and Effort," IZA Discussion Papers 1417, Institute for the Study of Labor (IZA).
  7. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  8. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  9. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.
  10. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
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