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  • January 2019
  • Article
  • 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
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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.
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About The Author

Christine L. Exley

Negotiation, Organizations & Markets
→More Publications

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    • February 2023
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    Nonprofits in Good Times and Bad Times

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    When Do Individuals Give Up Agency? The Role of Decision Avoidance

    By: Holly Dykstra, Christine L. Exley and Muriel Niederle
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    The Gender Minority Gaps in Confidence and Self-Evaluations

    By: Billur Aksoy, Christine L. Exley and Judd B. Kessler
More from the Authors
  • Nonprofits in Good Times and Bad Times By: Christine L. Exley, Nils H. Lehr and Stephen J. Terry
  • When Do Individuals Give Up Agency? The Role of Decision Avoidance By: Holly Dykstra, Christine L. Exley and Muriel Niederle
  • The Gender Minority Gaps in Confidence and Self-Evaluations By: Billur Aksoy, Christine L. Exley and Judd B. Kessler
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