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


Ernst Fehr


University of Zurich - Department of Economics

Lorenz Goette


University of Lausanne; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

September 2005

IEW Working Paper No. 125

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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Date posted: December 11, 2002  

Suggested Citation

Fehr, Ernst and Goette, Lorenz, Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment (September 2005). IEW Working Paper No. 125. Available at SSRN: https://ssrn.com/abstract=326803 or http://dx.doi.org/10.2139/ssrn.326803

Contact Information

Ernst Fehr (Contact Author)
University of Zurich - Department of Economics ( email )
Blümlisalpstrasse 10
Zuerich, 8006
Switzerland
+41 1 634 3709 (Phone)
+41 1 634 4907 (Fax)
Lorenz F. Goette
University of Lausanne ( email )
Department of Economics
Batiment Internef
Lausanne, 1015
Switzerland
(021) 692'3496 (Phone)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
HOME PAGE: http://www.iza.org

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