IDEAS home Printed from https://ideas.repec.org/p/usg/dp2009/2009-29.html
   My bibliography  Save this paper

Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis

Author

Listed:
  • Christian Thöni
  • Simon Gächter

Abstract

We investigate the impact of wage comparisons for worker productivity. We present three studies which all use three-person gift-exchange experiments. Consistent with Akerlof and Yellen's (1990) fair wage-effort hypothesis we find that disadvantageous wage discrimination leads to lower efforts while advantageous wage discrimination does not increase efforts on average. Two studies allow us to measure wage comparison effects at the individual level. We observe strongly heterogeneous wage comparison effects. We also find that reactions to wage discrimination can be attributed to the underlying intentions of discrimination rather than to payoff consequences.

Suggested Citation

  • Christian Thöni & Simon Gächter, 2009. "Social Comparison and Performance: Experimental Evidence on the Fair Wage-Effort Hypothesis," University of St. Gallen Department of Economics working paper series 2009 2009-29, Department of Economics, University of St. Gallen.
    • Handle: RePEc:usg:dp2009:2009-29
    as

    Download full text from publisher

    File URL: http://ux-tauri.unisg.ch/RePEc/usg/dp2009/DP-0929-Th.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Simon Gächter & Elke Renner, 2010. "The effects of (incentivized) belief elicitation in public goods experiments," Experimental Economics, Springer;Economic Science Association, vol. 13(3), pages 364-377, September.
    2. Gary Charness & Guillaume R. Frechette & John H. Kagel, 2004. "How Robust is Laboratory Gift Exchange?," Experimental Economics, Springer;Economic Science Association, vol. 7(2), pages 189-205, June.
    3. Gary Charness, 2004. "Attribution and Reciprocity in an Experimental Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 665-688, July.
    4. Christian Grund & Niels Westergaard-Nielsen, 2008. "The Dispersion of Employees' Wage Increases and Firm Performance," ILR Review, Cornell University, ILR School, vol. 61(4), pages 485-501, July.
    5. George A. Akerlof & Janet L. Yellen, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 255-283.
    6. Blount, Sally, 1995. "When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 131-144, August.
    7. 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.
    8. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-261, April.
    9. AndrewE. Clark & Claudia Senik, 2010. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," Economic Journal, Royal Economic Society, vol. 120(544), pages 573-594, May.
    10. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
    11. Falk, Armin & Fehr, Ernst & Fischbacher, Urs, 2008. "Testing theories of fairness--Intentions matter," Games and Economic Behavior, Elsevier, vol. 62(1), pages 287-303, January.
    12. Dufwenberg, Martin & Kirchsteiger, Georg, 2000. "Reciprocity and wage undercutting," European Economic Review, Elsevier, vol. 44(4-6), pages 1069-1078, May.
    13. Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1998. "Gift exchange and reciprocity in competitive experimental markets," European Economic Review, Elsevier, vol. 42(1), pages 1-34, January.
    14. Heike Hennig-Schmidt & Bettina Rockenbach & Abdolkarim Sadrieh, 2010. "In Search Of Workers' Real Effort Reciprocity-A Field and a Laboratory Experiment," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 817-837, June.
    15. Ernst Fehr & Armin Falk, 1999. "Wage Rigidity in a Competitive Incomplete Contract Market," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 106-134, February.
    16. Hibbs, Douglas A, Jr & Locking, Hakan, 2000. "Wage Dispersion and Productive Efficiency: Evidence for Sweden," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 755-782, October.
    17. Armin Falk & James J. Heckman, 2009. "Lab Experiments are a Major Source of Knowledge in the Social Sciences," Working Papers 200935, Geary Institute, University College Dublin.
    18. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February.
    19. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
    20. Iris Bohnet & Richard Zeckhauser, 2004. "Social Comparisons in Ultimatum Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 495-510, October.
    21. Urs Fischbacher & Simon Gachter, 2010. "Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Goods Experiments," American Economic Review, American Economic Association, vol. 100(1), pages 541-556, March.
    22. Ernst Fehr & Lorenz Goette & Christian Zehnder, 2009. "A Behavioral Account of the Labor Market: The Role of Fairness Concerns," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 355-384, May.
    23. Andrew E. Clark & David Masclet & Marie Claire Villeval, 2010. "Effort and Comparison Income: Experimental and Survey Evidence," ILR Review, Cornell University, ILR School, vol. 63(3), pages 407-426, April.
    24. Benedikt Herrmann & Christian Thöni, 2009. "Measuring conditional cooperation: a replication study in Russia," Experimental Economics, Springer;Economic Science Association, vol. 12(1), pages 87-92, March.
    25. Alewell, Dorothea & Nicklisch, Andreas, 2009. "Wage differentials and social comparison: An experimental study of interrelated ultimatum bargaining," International Review of Law and Economics, Elsevier, vol. 29(3), pages 210-220, September.
    26. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-628, October.
    27. Croson, Rachel & Gächter, Simon, 2010. "The science of experimental economics," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 122-131, January.
    28. Uri Gneezy & John A List, 2006. "Putting Behavioral Economics to Work: Testing for Gift Exchange in Labor Markets Using Field Experiments," Econometrica, Econometric Society, vol. 74(5), pages 1365-1384, September.
    29. Fischbacher, Urs & Gachter, Simon & Fehr, Ernst, 2001. "Are people conditionally cooperative? Evidence from a public goods experiment," Economics Letters, Elsevier, vol. 71(3), pages 397-404, June.
    30. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    31. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
    32. Gächter, Simon & Thöni, Christian, 2010. "Social comparison and performance: Experimental evidence on the fair wage-effort hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 531-543, December.
    33. Rudolf Winter‐Ebmer & Josef Zweimüller, 1999. "Intra‐firm Wage Dispersion and Firm Performance," Kyklos, Wiley Blackwell, vol. 52(4), pages 555-572, November.
    34. Armin Falk, 2007. "Gift Exchange in the Field," Econometrica, Econometric Society, vol. 75(5), pages 1501-1511, September.
    35. Kocher, Martin G. & Cherry, Todd & Kroll, Stephan & Netzer, Robert J. & Sutter, Matthias, 2008. "Conditional cooperation on three continents," Economics Letters, Elsevier, vol. 101(3), pages 175-178, December.
    36. Klaus Abbink & Heike Hennig-Schmidt, 2006. "Neutral versus loaded instructions in a bribery experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 103-121, June.
    37. Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
    38. Antonio Cabrales & Gary Charness, 2000. "Optimal contracts, adverse selection and social preferences: An experiment," Economics Working Papers 478, Department of Economics and Business, Universitat Pompeu Fabra.
    39. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
    40. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
    41. Jonathan S. Leonard, 1990. "Executive Pay and Firm Performance," ILR Review, Cornell University, ILR School, vol. 43(3), pages 13, April.
    42. Ernst Fehr & Urs Fischbacher, "undated". "Why Social Preferences Matter - The Impact of Non-Selfish Motives on Competition," IEW - Working Papers 084, Institute for Empirical Research in Economics - University of Zurich.
    43. Gary Charness & Peter Kuhn, 2007. "Does Pay Inequality Affect Worker Effort? Experimental Evidence," Journal of Labor Economics, University of Chicago Press, vol. 25(4), pages 693-723.
    44. Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
    45. Jordi Brandts & Gary Charness, 2004. "Do Labour Market Conditions Affect Gift Exchange? Some Experimental Evidence," Economic Journal, Royal Economic Society, vol. 114(497), pages 684-708, July.
    46. Armin Falk & Ernst Fehr & Urs Fischbacher, 2003. "On the Nature of Fair Behavior," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 20-26, January.
    47. Luigi Mittone & Matteo Ploner, 2008. "Social Effects in a Multi-Agent Investment Game. An Experimental Analysis," CEEL Working Papers 0805, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    48. Werner Güth & Manfred Königstein & Judit Kovács & Enikõ Zala-Mezõ, 2001. "Fairness Within Firms: The Case Of One Principal And Multiple Agents," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 53(2), pages 82-101, April.
    49. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-280, April.
    50. Muller, Laurent & Sefton, Martin & Steinberg, Richard & Vesterlund, Lise, 2008. "Strategic behavior and learning in repeated voluntary contribution experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 782-793, September.
    51. 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.
    52. Martins, Pedro S., 2008. "Dispersion in wage premiums and firm performance," Economics Letters, Elsevier, vol. 101(1), pages 63-65, October.
    53. repec:bla:kyklos:v:52:y:1999:i:4:p:555-72 is not listed on IDEAS
    54. Greiner, Ben & Ockenfels, Axel & Werner, Peter, 2011. "Wage transparency and performance: A real-effort experiment," Economics Letters, Elsevier, vol. 111(3), pages 236-238, June.
    55. Ernst Fehr & Urs Fischbacher, 2002. "Why Social Preferences Matter -- The Impact of Non-Selfish Motives on Competition, Cooperation and Incentives," Economic Journal, Royal Economic Society, vol. 112(478), pages 1-33, March.
    56. Alain Cohn & Ernst Fehr & Benedikt Herrmann & Frédéric Schneider, 2011. "Social comparison in the workplace: evidence from a field experiment," ECON - Working Papers 007, Department of Economics - University of Zurich.
    57. Burchett, Richard & Willoughby, John, 2004. "Work productivity when knowledge of different reward systems varies: Report from an economic experiment," Journal of Economic Psychology, Elsevier, vol. 25(5), pages 591-600, October.
    58. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, July.
    59. Knez Marc J. & Camerer Colin F., 1995. "Outside Options and Social Comparison in Three-Player Ultimatum Game Experiments," Games and Economic Behavior, Elsevier, vol. 10(1), pages 65-94, July.
    60. repec:hal:pseose:halshs-00754447 is not listed on IDEAS
    61. Carl M. Campbell III & Kunal S. Kamlani, 1997. "The Reasons for Wage Rigidity: Evidence from a Survey of Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 759-789.
    62. James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September.
    63. Simon Gächter & Elke Renner, 2010. "The effects of (incentivized) belief elicitation in public goods experiments," Experimental Economics, Springer;Economic Science Association, vol. 13(3), pages 364-377, September.
    64. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 923-951, October.
    65. Agell, Jonas & Bennmarker, Helge, 2007. "Wage incentives and wage rigidity: A representative view from within," Labour Economics, Elsevier, vol. 14(3), pages 347-369, June.
    66. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    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. Gächter, Simon & Thöni, Christian, 2010. "Social comparison and performance: Experimental evidence on the fair wage-effort hypothesis," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 531-543, December.
    2. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
    3. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
    4. Gross, Till & Guo, Christopher & Charness, Gary, 2015. "Merit pay and wage compression with productivity differences and uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 233-247.
    5. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    6. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    7. Gary Bolton & Peter Werner, 2016. "The influence of potential on wages and effort," Experimental Economics, Springer;Economic Science Association, vol. 19(3), pages 535-561, September.
    8. Angelova, Vera & Güth, Werner & Kocher, Martin G., 2012. "Co-employment of permanently and temporarily employed agents," Labour Economics, Elsevier, vol. 19(1), pages 48-58.
    9. Dariel, A. & Riedl, A.M., 2013. "Reciprocal preferences and the unraveling of gift-exchange," Research Memorandum 034, Maastricht University, Graduate School of Business and Economics (GSBE).
    10. Nickolas Gagnon & Charles N. Noussair, 2020. "Reciprocity Under Brief And Long‐Time Delays," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1517-1530, July.
    11. Daniele Nosenzo, 2010. "The Impact of Pay Comparisons on Effort Behavior," Discussion Papers 2010-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    12. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    13. Christian Thoeni & Simon Gaechter, 2011. "Peer Effects and Social Preferences in Voluntary Cooperation," Discussion Papers 2011-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    14. Gagnon, Nickolas & Noussair, C., 2016. "Does Reciprocity Persist Over Time?," Research Memorandum 033, Maastricht University, Graduate School of Business and Economics (GSBE).
    15. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    16. Daniele Nosenzo, 2012. "Pay Secrecy and effort provision," Discussion Papers 2012-13, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    17. Lin, Chung-Cheng & Yang, C.C., 2010. "Reciprocity and downward wage rigidity," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1155-1168, December.
    18. Brandes, Leif & Franck, Egon, 2012. "Social preferences or personal career concerns? Field evidence on positive and negative reciprocity in the workplace," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 925-939.
    19. repec:bla:ecinqu:v:51:y:2013:i:3:p:1779-1794 is not listed on IDEAS
    20. Axel Ockenfels & Dirk Sliwka & Peter Werner, 2015. "Bonus Payments and Reference Point Violations," Management Science, INFORMS, vol. 61(7), pages 1496-1513, July.
    21. Sandra Maximiano & Randolph Sloof & Joep Sonnemans, 2007. "Gift Exchange in a Multi-Worker Firm," Economic Journal, Royal Economic Society, vol. 117(522), pages 1025-1050, July.

    More about this item

    Keywords

    fair wage-effort hypothesis; wage comparison; gift exchange; horizontal fairness; discrimination;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

    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:usg:dp2009:2009-29. 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: Martina Flockerzi (email available below). General contact details of provider: https://edirc.repec.org/data/vwasgch.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.