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The Effect of Wage-Payment Reform on Workers’ Labor Supply and WelfareEsther RedmountColorado College - Department of Economics and Business Arthur SnowUniversity of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics Ronald S. Warren Jr.University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics August 14, 2009 Colorado College Working Paper 2009-05 Abstract: We analyze the effects of a largely ignored 1885 legislative reform in Massachusetts requiring that firms provide workers the option of receiving weekly wage payments. Using an inter-temporal model of deferred compensation, we derive conditions on elasticities of labor supply that determine the effects of the reform on workers’ effective wage and utility. We then examine empirically the effects of the reform, using weekly data on mill workers in Lowell. Given the implications of our theoretical analysis, the empirical findings of positive wage and reform elasticities imply that the switch to weekly payment increased workers’ effective wage and well-being.
Number of Pages in PDF File: 27 Keywords: elasticity, labor supply, wage, welfare, Massachusetts, wage frequency JEL Classification: J22, J33, K31, I31 working papers seriesDate posted: August 16, 2009Suggested CitationContact Information
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