Social comparisons in wage delegation: experimental evidence

Abstract

We make two contributions in this article. First, we examine whether social comparisons have behavioral effects on workers' performance when a firm can choose workers' wages or let them choose their own. Firms can delegate the wage decision to neither, one or both workers in the firm. We vary the information workers receive, finding that social comparisons concerning both wages and decision rights affect workers' performance. In fact, the relative effect of discrimination in relation to decision rights is larger than in relation to wage. Our second contribution is methodological. We find that our treatment effects are present with both stated effort and a real-effort task, suggesting that both approaches may yield similar results in labor experiments.

Should firms allow workers to choose their own wage?

“…"Social comparisons in wage delegation: Experimental evidence." Experimental Economics (Forthcoming) [5]. Figure 3 shows that this pattern is also found in the two-person-one-firm setting [5], which is perhaps more realistic, and also affords the possibility of observing the effect when the firm delegates the wage choice to one worker but not the other; this setting could ideally be adapted to larger firms in the future.…”

“…Experimental Economics (Forthcoming) [5]. Figure 3 shows that this pattern is also found in the two-person-one-firm setting [5], which is perhaps more realistic, and also affords the possibility of observing the effect when the firm delegates the wage choice to one worker but not the other; this setting could ideally be adapted to larger firms in the future. Additional data (not shown in Figure 3) indicate that wage-choice rights are intrinsically valued, since effort choices are higher with delegation, after controlling for the wage.…”

“…"Social comparisons in wage delegation: Experimental evidence." Experimental Economics (Forthcoming) [5]. The bottom line is that when a (trusted) worker is given the right (the responsibility) of choosing his or her own wage, he or she will choose a very high wage but will also choose a high effort level.…”

“…If a person feels responsible for determining the outcome, the notion of responsibility says that they are more likely to exhibit pro-social (cooperative) behavior. This was first established using experimental data [4] and there are now several articles supporting this claim [3], [5], [6], [7]. In the particular case of the employer−employee relationship, effort is typically considered unobservable, so that the worker has some latitude concerning the level of effort contributed, and thus bears some degree of responsibility for the outcome.…”

“…Evidence seems to support the idea that delegation is a beneficial tactic [3], [5]. The basic structure during the relevant experiments included a firm endowed with 240 monetary units and a feasible wage from 0 to 120.…”