Crowding Out in the Labor Market: A Prosocial Setting Is Necessary

Tanjim Hossain () and King King Li ()
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King King Li: School of Economics, Shanghai University of Finance and Economics, 200433 Shanghai, China; and Department of Economics and Finance, College of Business, City University of Hong Kong, Kowloon, Hong Kong

Management Science, 2014, vol. 60, issue 5, 1148-1160

Abstract: Recent studies, mostly from prosocial settings, suggest that monetary rewards may crowd out effort exertion by economic agents. We design a field experiment with data entry workers to investigate the extent of such crowding-out effects in a labor market. Using simple variations in the job description of a task, we induce a natural work setting under the work frame and emphasize social preference under the social frame. We find that crowding out of labor participation critically depends on framing---whereas small monetary rewards reduce the participation rate under the social frame, the participation rate is nondecreasing in the wage rate under the work frame. Moreover, among the workers who participate in the task, those who receive a positive wage perform a considerably higher amount of work than those who are paid zero wage under either frame. Thus, there is weak evidence of crowding out only when the task is explicitly given a prosocial flavor and not under a regular work setting. Furthermore, emphasizing social preference in the labor market in such a way reduces the overall labor supply and seems to have an adverse effect on the quality of work.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1807 . This paper was accepted by John List, behavioral economics.

Keywords: social preference; labor supply; crowding out; intrinsic and extrinsic motivations; natural field experiment (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:5:p:1148-1160

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