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Fair wages and effort provision: Combining evidence from the lab and the field

Author

Listed:
  • Alain Cohn
  • Ernst Fehr
  • Lorenz Goette

Abstract

The presence of workers who reciprocate higher wages with greater effort can have important consequences for labor markets. Knowledge about the determinants of reciprocal effort choices is, however, incomplete. We investigate the role of fairness perceptions and social preferences in workers’ performance in a field experiment in which workers were hired for a one-time job. We show that workers who perceive being underpaid at the base wage increase their performance if the hourly wage increases, while those who feel adequately paid or overpaid at the base wage do not change their performance. Moreover, we find that only workers who display positive reciprocity in a lab experiment show reciprocal performance responses in the field, while workers who lack positive reciprocity in the lab do not respond to the wage increase even if they feel underpaid at the base wage. Our findings suggest that fairness perceptions and social preferences are key in workers’ performance response to a wage increase. They are the first direct evidence of the fair-wage effort hypothesis in the field and also help interpret previous contradictory findings in the literature.

Suggested Citation

  • Alain Cohn & Ernst Fehr & Lorenz Goette, 2013. "Fair wages and effort provision: Combining evidence from the lab and the field," ECON - Working Papers 107, Department of Economics - University of Zurich.
  • Handle: RePEc:zur:econwp:107
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    File URL: http://www.econ.uzh.ch/static/wp/econwp107.pdf
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    References listed on IDEAS

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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Wages, fairness & productivity
      by chris dillow in Stumbling and Mumbling on 2013-01-31 19:33:36
    2. 'Wages, Fairness, and Productivity'
      by Mark Thoma in Economist's View on 2013-01-31 16:50:53

    Citations

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    Cited by:

    1. Marco Fongoni & Alex Dickson, 2015. "A theory of wage setting behavior," Working Papers 1505, University of Strathclyde Business School, Department of Economics, revised Feb 2016.
    2. Montizaan R.M. & Grip A. de & Fouarge D., 2015. "Training access, reciprocity, and expected retirement age," Research Memorandum 005, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Dohmen, Thomas, 2014. "Behavioral labor economics: Advances and future directions," Labour Economics, Elsevier, vol. 30(C), pages 71-85.
    4. Sliwka, Dirk & Werner, Peter, 2016. "How Do Agents React to Dynamic Wage Increases? An Experimental Study," IZA Discussion Papers 9855, Institute for the Study of Labor (IZA).
    5. Armin Falk & Fabian Kosse & Ingo Menrath & Pablo Emilio Verde & Johannes Siegrist, 2014. "Unfair Pay and Health," SOEPpapers on Multidisciplinary Panel Data Research 715, DIW Berlin, The German Socio-Economic Panel (SOEP).
    6. Jennifer C. Smith, 2015. "Pay Growth, Fairness, and Job Satisfaction: Implications for Nominal and Real Wage Rigidity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 852-877, July.
    7. Sabrina Jeworrek & Vanessa Mertins, 2014. "Wage Delegation in the Field," IAAEU Discussion Papers 201408, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    8. Carpenter, Jeffrey, 2016. "The labor supply of fixed-wage workers: Estimates from a real effort experiment," European Economic Review, Elsevier, vol. 89(C), pages 85-95.
    9. Koch, Alexander K. & Nafziger, Julia, 2015. "A Real-Effort Experiment on Gift Exchange with Temptation," IZA Discussion Papers 9084, Institute for the Study of Labor (IZA).
    10. repec:inn:wpaper:2014-31 is not listed on IDEAS
    11. Aurélie BONEIN, 2014. "Social Comparison and Peer effects with Heterogeneous Ability," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201411, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

    More about this item

    Keywords

    Fairness perception; positive reciprocity; field experiment; wage increase;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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