Deferred Compensation and Gift Exchange: An Experimental Investigation into Multi-Period Labor Markets

30 Pages Posted: 14 Jul 2004

See all articles by Steffen Huck

Steffen Huck

University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Andrew Seltzer

University of London, Royal Holloway College - Department of Economics

Brian Wallace

University College London - Centre for Economic Learning and Social Evolution (ELSE)

Date Written: June 2004

Abstract

This paper examines the relationship between firms' wage offers and workers' supply of effort using a three-period experiment. In equilibrium, firms will offer deferred compensation: first period productivity is positive and wages are zero, while third period productivity is zero and wages are positive. The experiment produces strong evidence that deferred compensation increases worker effort; in about 70 percent of cases subjects supplied the optimal effort given the wage offer, and there was a strong effort response to future-period wages. We also find some evidence of gift exchange; worker players increased the effort levels in response to above equilibrium wage offers by a human, but not in response to similar offers by a computer. Finally, we find that firm players who are initially hesitant to defer compensation learn over time that it is beneficial to do so.

Keywords: deferred compensation, pensions, experimental labor economics, personnel

JEL Classification: C91, J31, J41, M51, M52

Suggested Citation

Huck, Steffen and Seltzer, Andrew and Wallace, Brian, Deferred Compensation and Gift Exchange: An Experimental Investigation into Multi-Period Labor Markets (June 2004). IZA Discussion Paper No. 1193. Available at SSRN: https://ssrn.com/abstract=564572

Steffen Huck (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 207 679 5895 (Phone)
+44 207 916 2774 (Fax)

HOME PAGE: http://www.ucl.ac.uk/~uctpshu/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrew Seltzer

University of London, Royal Holloway College - Department of Economics ( email )

Royal Holloway College
Egham
Surrey, Surrey TW20 0EX
United Kingdom

Brian Wallace

University College London - Centre for Economic Learning and Social Evolution (ELSE) ( email )

Gower Street
London WC1E 6BT
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
111
Abstract Views
1,839
rank
252,276
PlumX Metrics