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Do Wage Cuts Damage Work Morale? Evidence from a Natural Field Experiment


Kube, Sebastian; Maréchal, Michel; Puppe, Clemens (2011). Do Wage Cuts Damage Work Morale? Evidence from a Natural Field Experiment. Working paper series / Institute for Empirical Research in Economics No. 471, University of Zurich.

Abstract

Employment contracts are often incomplete, leaving many responsibilities subject to workers’ discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20 percent. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.

Employment contracts are often incomplete, leaving many responsibilities subject to workers’ discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20 percent. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
JEL Classification:C93, J30
Uncontrolled Keywords:morale, reciprocity, gift exchange, field experiment
Language:English
Date:October 2011
Deposited On:25 Nov 2011 10:13
Last Modified:05 Apr 2016 15:08
Series Name:Working paper series / Institute for Empirical Research in Economics
Number of Pages:34
ISSN:1424-0459
Additional Information:Revised version
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: http://doi.org/10.5167/uzh-51506

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