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Do Workers Work More When Wages Are High? Evidence from a Randomized Field Experiment

Author

Listed:
  • Fehr, Ernst

    (University of Zurich)

  • Götte, Lorenz

    (National University of Singapore)

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.

Suggested Citation

  • Fehr, Ernst & Götte, Lorenz, 2004. "Do Workers Work More When Wages Are High? Evidence from a Randomized Field Experiment," IZA Discussion Papers 1002, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1002
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    File URL: https://docs.iza.org/dp1002.pdf
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    References listed on IDEAS

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    Cited by:

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    2. 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.
    3. Charles Bellemare & Bruce Shearer, 2007. "Gift Exchange within a Firm: Evidence from a Field Experiment," Cahiers de recherche 0708, CIRPEE.
    4. Kuckulenz, Anja, 2006. "Wage and Productivity Effect of Continuing Training in Germany: A Sectoral Analysis," ZEW Discussion Papers 06-025, ZEW - Leibniz Centre for European Economic Research.
    5. Marianne Bertrand & Dean Karlan & Sendhil Mullainathan & Eldar Shafir & Jonathan Zinman, 2010. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(1), pages 263-306.

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    More about this item

    Keywords

    loss aversion; intertemporal substitution; labor supply;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other

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