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An Empirical Analysis of Risk Preferences, Compensation Risk, and Employee Outcomes

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  • Fidan Ana Kurtulus

    () (University of Massachusetts Amherst)

  • Douglas Kruse

    (Rutgers University)

  • Joseph Blasi

    (Rutgers University)

Abstract

We use the NBER Shared Capitalism Database comprised of more than 40,000 employee surveys from 14 firms to explore whether a close match between workers’ risk preferences and the riskiness of their compensation packages relates to improved employee outcomes including lower absenteeism, lower shirking, lower probability of voluntary turnover, greater worker motivation, and higher levels of job satisfaction and loyalty. To do this, we use survey questions reflecting workers’ risk aversion parameters, coupled with a series of measures of the riskiness of workers’ compensation packages including the proportion of pay comprised of various forms of shared capitalism such as profit and gain sharing, ownership of company stock, and bonus arrangements. The primary finding of our paper is that a match between the workers’ risk preferences and the extent of risk in their compensation increases workers’ motivation, job satisfaction, company attachment, and loyalty, but risk-averse workers are generally less responsive to a preference-compensation match than risk-loving workers. JEL Categories:

Suggested Citation

  • Fidan Ana Kurtulus & Douglas Kruse & Joseph Blasi, 2011. "An Empirical Analysis of Risk Preferences, Compensation Risk, and Employee Outcomes," UMASS Amherst Economics Working Papers 2011-10, University of Massachusetts Amherst, Department of Economics.
  • Handle: RePEc:ums:papers:2011-10
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    File URL: http://www.umass.edu/economics/publications/2011-10.pdf
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    References listed on IDEAS

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    1. Jorge Saba Arbache & Andy Dickerson & Francis Green, 2004. "Trade Liberalisation and Wages in Developing Countries," Economic Journal, Royal Economic Society, vol. 114(493), pages 73-96, February.
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    3. Pablo Fajnzylber, 2001. "Minimum Wage Effects Throughout the Wage Distribution: Evidence from Brazil's Formal and Informal Sectors," Anais do XXIX Encontro Nacional de Economia [Proceedings of the 29th Brazilian Economics Meeting] 098, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    4. William Maloney & Jairo Mendez, 2004. "Measuring the Impact of Minimum Wages. Evidence from Latin America," NBER Chapters,in: Law and Employment: Lessons from Latin America and the Caribbean, pages 109-130 National Bureau of Economic Research, Inc.
    5. Blunch, Niels-Hugo & Canagarajah, Sudharshan & Raju, Dhushyanth, 2001. "The informal sector revisited : a synthesis across space and time," Social Protection and Labor Policy and Technical Notes 23308, The World Bank.
    6. repec:ilo:ilowps:354172 is not listed on IDEAS
    7. Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
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