Asymmetric Labor-Supply Responses to Wage-Rate Changes: Evidence from a Field Experiment

Philipp Doerrenberg, Denvil Duncan and Max Löffler

No 9683, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The standard labor-supply literature typically assumes that the labor supply response to wage increases is the same as that for equivalent wage decreases. However, evidence from the behavioral-economics literature suggests that people are loss averse and thus perceive losses differently than gains. This behavioral insight may imply that workers respond differently to wage increases than to wage decreases. We estimate the effect of wage increases and decreases on labor supply using a randomized field experiment with workers on Amazon's Mechanical Turk. The results provide evidence that wage increases have smaller effects than wage decreases, suggesting that the labor-supply response to wage changes is asymmetric. This finding is especially strong on the extensive margin where the elasticity for a wage decrease is twice that for a wage increase. These findings suggest that a reference-dependent utility function that incorporates loss aversion is the most appropriate way to model labor supply.

Keywords: labor supply elasticities; loss aversion; labor supply; w.r.t. wages (search for similar items in EconPapers)
JEL-codes: D03 J22 J31 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-01
New Economics Papers: this item is included in nep-exp, nep-lma and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - revised version published in: Labour Economics , 2023, 81,102305

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Related works:
Journal Article: Asymmetric labor-supply responses to wage changes: Experimental evidence from an online labor market (2023)
Working Paper: Asymmetric labor-supply responses to wage-rate changes: Evidence from a field experiment (2016)
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