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


Fehr, Ernst; Götte, Lorenz (2005). Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment. Working paper series / Institute for Empirical Research in Economics No. 125, University of Zurich.

Abstract

Most previous studies on intertemporal labor supply found very small or insignificantnsubstitution effects. It is not clear, however, whether these results are due to institutionalnconstraints on workers’ labor supply choices or whether the behavioral assumptions of thenstandard 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.nWhile 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 withnreference dependent, loss averse preferences are consistent with the evidence. With the help of anfurther experiment we can show that only loss averse individuals exhibit a significantly negativeneffort response to the wage increase and that the degree of loss aversion predicts the size of the negative effort response.

Abstract

Most previous studies on intertemporal labor supply found very small or insignificantnsubstitution effects. It is not clear, however, whether these results are due to institutionalnconstraints on workers’ labor supply choices or whether the behavioral assumptions of thenstandard 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.nWhile 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 withnreference dependent, loss averse preferences are consistent with the evidence. With the help of anfurther experiment we can show that only loss averse individuals exhibit a significantly negativeneffort response to the wage increase and that the degree of loss aversion predicts the size of the negative effort response.

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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
Language:English
Date:September 2005
Deposited On:29 Nov 2011 21:25
Last Modified:12 Aug 2017 12:52
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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