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

Institute for Empirical Research in Economics,University of Zurich, Working Paper No. 471

34 Pages Posted: 6 Feb 2010 Last revised: 15 Nov 2011

See all articles by Sebastian Kube

Sebastian Kube

affiliation not provided to SSRN

Michel André Maréchal

University of Zurich - Department of Economics

Clemens Puppe

Karlsruhe Institute of Technology; University of Karlsruhe

Date Written: October 2011

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.

Keywords: Morale, reciprocity, gift exchange, field experiment

JEL Classification: C93, J3

Suggested Citation

Kube, Sebastian and Maréchal, Michel André and Puppe, Clemens, Do Wage Cuts Damage Work Morale? Evidence from a Natural Field Experiment (October 2011). Institute for Empirical Research in Economics,University of Zurich, Working Paper No. 471, Available at SSRN: https://ssrn.com/abstract=1547823 or http://dx.doi.org/10.2139/ssrn.1547823

Sebastian Kube (Contact Author)

affiliation not provided to SSRN ( email )

Michel André Maréchal

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland

Clemens Puppe

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

University of Karlsruhe ( email )

Kaiserstrasse 12
Karlsruhe, 76128
Germany

HOME PAGE: http://www.wior.uni-karlsruhe.de/LS_Puppe/Personal/puppe_home

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