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Outside Options and Worker Motivation

Author

Listed:
  • Alexander Ahammer
  • Matthias Fahn
  • Flora Stiftinger
Abstract
We study the relationship between outside options and workers’ motivation to exert effort. We evaluate changes in outside options arising from age and experience cutoffs in the Austrian unemployment insurance (UI) system, and use absenteeism as a proxy for worker effort. Results indicate that a one-percent increase in the potential UI benefit duration increases absenteeism at the intensive margin by 0.28 percent. These results are consistent with a relational contracting model where effort is constrained by the future value of an employment relationship. This model further predicts that effort reductions are more pronounced if benefits assume a larger role in a worker’s outside option and if the perceived relationship value is small. Indeed, we find that our effects are stronger for workers with higher potential cost of unemployment, for older workers, in declining rather than in growing firms, in low-wage firms, and for women as well as workers with children.

Suggested Citation

  • Alexander Ahammer & Matthias Fahn & Flora Stiftinger, 2023. "Outside Options and Worker Motivation," CESifo Working Paper Series 10581, CESifo.
    • Handle: RePEc:ces:ceswps:_10581
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    Cited by:

    1. Jonathan Cohen & Geoffrey C. Schnorr, 2024. "Efficiency Costs of Unemployment Insurance Denial: Evidence from Randomly Assigned Examiners," Upjohn Working Papers 24-404, W.E. Upjohn Institute for Employment Research.
    2. Fahn, Matthias & Murooka, Takeshi, 2024. "Informal Incentives and Labor Markets," IZA Discussion Papers 17042, Institute of Labor Economics (IZA).
    3. Fahn, Matthias & MacLeod, W. Bentley & Muehlheusser, Gerd, 2023. "Past and Future Developments in the Economics of Relational Contracts," IZA Discussion Papers 16427, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    outside options; effort incentives; relational contracts;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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