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Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment
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ERNST FEHR
University of Zurich - Institute for Empirical Research in Economics (IEW); Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)
LORENZ GOETTE
Federal Reserve Bank of Boston; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
September 2005
IEW Working Paper No. 125
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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.
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Working Paper Series
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Suggested Citation
Fehr, Ernst and Goette, Lorenz F., "Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment"
(September 2005).
IEW Working Paper No. 125 Available at SSRN: http://ssrn.com/abstract=326803
or DOI: 10.2139/ssrn.326803
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Contact Information for
ERNST
FEHR
(Contact Author)
Email address for ERNST
FEHR
University of Zurich - Institute for Empirical Research in Economics (IEW)
Bluemlisalpstrasse 10
CH-8006 Zurich
Switzerland
+41 1 634 3709 (Phone)
+41 1 634 4907 (Fax)
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Email address for ERNST
FEHR
Massachusetts Institute of Technology (MIT) - Department of Economics
50 Memorial Drive
Cambridge
, MA
02142
United States
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(No e-mail address available for ERNST
FEHR
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London EC1V 7RR
United Kingdom
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(No e-mail address available for ERNST
FEHR
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
DE-81679 Munich
Germany
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(No e-mail address available for ERNST
FEHR
Institute for the Study of Labor (IZA)
P.O. Box 7240
D-53072 Bonn
Germany
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Contact Information for
LORENZ
GOETTE
Email address for LORENZ
GOETTE
Federal Reserve Bank of Boston
600 Atlantic Avenue
Boston
, MA
02210
United States
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(No e-mail address available for LORENZ
GOETTE
Centre for Economic Policy Research (CEPR)
90-98 Goswell Road
London EC1V 7RR
United Kingdom
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(No e-mail address available for LORENZ
GOETTE
Institute for the Study of Labor (IZA)
P.O. Box 7240
D-53072 Bonn
Germany
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Dec 11, 2002 |
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