Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study

Christine L. Exley () and Stephen Terry
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Christine L. Exley: Harvard Business School, Boston, Massachusetts 02163

Management Science, 2019, vol. 65, issue 1, 413-425

Abstract: We experimentally test how effort responds to wages—randomly assigned to accrue to individuals or to a charity—in the presence of expectations-based reference points or targets. When individuals earn money for themselves, higher wages lead to higher effort with relatively muted targeting behavior. When individuals earn money for a charity, higher wages instead lead to lower effort with substantial targeting behavior. A reference-dependent theoretical framework suggests an explanation for this differential impact: when individuals place less value on earnings, such as when accruing earnings for a charity instead of themselves, more targeting behavior and a more sluggish response to incentives should result. Results from an additional experiment add support to this explanation. When individuals select into earning money for a charity and thus likely place a higher value on those earnings, targeting behavior is muted and no longer generates a negative effort response to higher wages.

Keywords: reference points; wage elasticities; labor supply; effort; volunteering; prosocial behavior (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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https://doi.org/10.1287/mnsc.2017.2870 (application/pdf)

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Working Paper: Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:1:p:413-425

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