Fair Wages When Employers Face the Risk of Losing Money

Karina Gose and Abdolkarim Sadrieh

No 110009, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: We study the behavior of employers and employees in a gift exchange game and find that employers offer lower wages when there is the risk of losing money. This, however, does not lead to lower effort level choices. In fact, effort per wage unit is significantly higher in the treatment with potential employer losses. This result can be in line with social comparison theories that are based on relative payoff differences. Alternatively, this result is also in line with the hypothesis that the risk of losing money increases the credibility of the employer's trust signal and, thus, the employee's reciprocity.

Keywords: fair wage; efficiency wage; social comparison; loss aversion (search for similar items in EconPapers)
JEL-codes: C92 D22 J41 (search for similar items in EconPapers)
Pages: 8 pages
Date: 2011-04
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-hrm, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.fww.ovgu.de/fww_media/femm/femm_2011/2011_09.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Fair wages when employers face the risk of losing money (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:110009

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