Publications
Publications
- January 2019
- Management Science
Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study
By: Christine L. Exley and Stephen J. Terry
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; Effor; Volunteering; Prosocial Behavior; Wages; Motivation and Incentives; Nonprofit Organizations; Behavior
Citation
Exley, Christine L., and Stephen J. Terry. "Wage Elasticities in Working and Volunteering: The Role of Reference Points in a Laboratory Study." Management Science 65, no. 1 (January 2019): 413–425.