Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment
Abstract: Most previous studies on intertemporal labor supply found very small or insignificant substitution effects. It is not clear, however, whether these results are due to institutional constraints on workers’ labor supply choices or whether the behavioral assumptions of the standard life cycle model with time separable preferences are empirically invalid. We conducted a randomized field experiment in a setting in which workers were free to choose their working times and their efforts during working time. We document a large positive wage elasticity of overall labor supply and an even larger wage elasticity of labor hours, which implies that the wage elasticity of effort per hour is negative. While the standard life cycle model cannot explain the negative effort elasticity, we show that a modified neoclassical model with preference spillovers across periods and a model with reference dependent, loss averse preferences are consistent with the evidence. With the help of a further experiment we can show that only loss averse individuals exhibit a significantly negative effort response to the wage increase and that the degree of loss aversion predicts the size of the negative effort response.
|Date of creation:||Sep 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +41-1-634 21 37
Fax: +41-1-634 49 82
Web page: http://www.econ.uzh.ch/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robin M. Hogarth & Hillel J. Einhorn, 1990. "Venture Theory: A Model of Decision Weights," Management Science, INFORMS, vol. 36(7), pages 780-803, July.
- Harry J. Paarsch & Bruce S. Shearer, 1999. "The Response of Worker Effort to Piece Rates: Evidence from the British Columbia Tree-Planting Industry," Journal of Human Resources, University of Wisconsin Press, vol. 34(4), pages 643-667.
- Shulamit Kahn & Kevin Lang, 1988.
"The Effects of Hours Constraints on Labor Supply Estimates,"
NBER Working Papers
2647, National Bureau of Economic Research, Inc.
- Kahn, Shulamit & Lang, Kevin, 1991. "The Effect of Hours Constraints on Labor Supply Estimates," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 605-11, November.
- Robin Cubitt & Chris Starmer & Robert Sugden, 1998. "On the Validity of the Random Lottery Incentive System," Experimental Economics, Springer, vol. 1(2), pages 115-131, September.
- Ridder, Geert & Tunali, Insan, 1999.
"Stratified partial likelihood estimation,"
Journal of Econometrics,
Elsevier, vol. 92(2), pages 193-232, October.
- Edward P. Lazear, 1996.
"Performance Pay and Productivity,"
NBER Working Papers
5672, National Bureau of Economic Research, Inc.
- Lorenz Goette & David Huffman & Ernst Fehr, 2004.
"Loss Aversion and Labor Supply,"
Journal of the European Economic Association,
MIT Press, vol. 2(2-3), pages 216-228, 04/05.
- Götte, Lorenz & Huffman, David B. & Fehr, Ernst, 2003. "Loss Aversion and Labor Supply," IZA Discussion Papers 927, Institute for the Study of Labor (IZA).
- Ernst Fehr & David Huffman & Lorenz Goette, 2004. "Loss Aversion And Labor Supply," Method and Hist of Econ Thought 0409003, EconWPA.
- Lorenz Goette & David Huffman & Ernst Fehr, . "Loss Aversion and Labor Supply," IEW - Working Papers 178, Institute for Empirical Research in Economics - University of Zurich.
- N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1982.
"Intertemporal Substitution in Macroeconomics,"
NBER Working Papers
0898, National Bureau of Economic Research, Inc.
- Robert G. King & Sergio T. Rebelo, 2000.
"Resuscitating Real Business Cycles,"
NBER Working Papers
7534, National Bureau of Economic Research, Inc.
- Gerald S. Oettinger, 1999. "An Empirical Analysis of the Daily Labor Supply of Stadium Vendors," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 360-392, April.
- Matthew Rabin, 2001.
"Risk Aversion and Expected Utility Theory: A Calibration Theorem,"
Levine's Working Paper Archive
7667, David K. Levine.
- Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
- Rabin, Matthew, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Department of Economics, Working Paper Series qt731230f8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Matthew Rabin., 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Economics Working Papers E00-279, University of California at Berkeley.
- Matthew Rabin, 2001. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Method and Hist of Econ Thought 0012001, EconWPA.
- Athey, Susan & Schmutzler, Armin, 2001. "Investment and Market Dominance," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 1-26, Spring.
- Camerer, Colin, et al, 1997.
"Labor Supply of New York City Cabdrivers: One Day at a Time,"
The Quarterly Journal of Economics,
MIT Press, vol. 112(2), pages 407-41, May.
- Camerer, Colin & Babcock, Linda & Loewenstein, George & Thaler, Richard, 1996. "Labor Supply of New York City Cab Drivers: One Day At A time," Working Papers 960, California Institute of Technology, Division of the Humanities and Social Sciences.
- David Card, 1990.
"Intertemporal Labor Supply: An Assessment,"
649, Princeton University, Department of Economics, Industrial Relations Section..
- Read, Daniel & Loewenstein, George & Rabin, Matthew, 1999. "Choice Bracketing," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 171-97, December.
- Joseph Altonji, 1984.
"Intertemporal Substitution in Labor Supply: Evidence from Micro Data,"
562, Princeton University, Department of Economics, Industrial Relations Section..
- Altonji, Joseph G, 1986. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S176-S215, June.
- Richard Blundell & Thomas MaCurdy, 1998.
"Labour supply: a review of alternative approaches,"
IFS Working Papers
W98/18, Institute for Fiscal Studies.
- Henry S. Farber, 2005. "Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 46-82, February.
- Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-43, May.
- Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
- Götte, Lorenz & Huffman, David B., 2005. "Affect as a Source of Motivation in the Workplace: A New Model of Labor Supply, and New Field Evidence on Income Targeting and the Goal Gradient," IZA Discussion Papers 1890, Institute for the Study of Labor (IZA).
When requesting a correction, please mention this item's handle: RePEc:zur:iewwpx:125. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser)
If references are entirely missing, you can add them using this form.