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on Human Capital and Human Resource Management |
| By: | Matthias Fahn; Giorgio Zanarone |
| Abstract: | This paper studies how pay transparency affects organizations that reward employees based on their efforts (i.e., using “subjective performance evaluation”). First, we show that transparency triggers social comparisons that require the organization to pay its employees an “envy premium”. This premium reduces the value of the employment relationship to the organization, and thus its incentive to pay subjective bonuses to the hard-working employees. To restore credibility of its incentive system, a transparent organization must therefore reduce the weight of bonuses, and increase the weight of fixed salaries, in the employees’ compensation, relative to organizations that operate in a more conventional “pay secrecy” regime. Second, we show that transparency enables the employees to collectively sanction the organization for reneging on subjective incentives. Collective enforcement allows the transparent organization to use strong employment relationships to “cross-subsidize” weak ones, achieving a more balanced allocation of effort than under pay secrecy. We discuss testable implications of our model for compensation design, the choice between transparency and secrecy regimes, and organizational responses to pay transparency laws. |
| Keywords: | social comparisons, secrecy, transparency, relational contracts, incentives |
| JEL: | D03 D23 M52 M54 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_8849&r=all |
| By: | Peter M. DeMarzo; Ron Kaniel |
| Abstract: | We consider multi-agent multi-firm contracting when agents benchmark their wages to a weighted average of their peers, where weights may vary within and across firms. Despite common shocks, compensation benchmarking can undo performance benchmarking, so that wages load positively rather than negatively on peer output. Although contracts appear inefficient, when a single principal commits to a public contract, the optimal contract hedges agents’ relative wage risk without sacrificing efficiency. Moreover, the principal can exploit any asymmetries in peer effects to enhance profits. With multiple principals, or a principal that is unable to commit, a “rat race” emerges in which agents are more productive, but wages increase even more, reducing profits and undermining efficiency. Effort levels are too high rather than too low, and can exceed first best. Wage transparency and disclosure requirements exacerbate these effects. |
| JEL: | D85 D86 G3 G4 J3 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28378&r=all |
| By: | Gallen, Yana (Harris School, University of Chicago); Wasserman, Melanie (University of California, Los Angeles) |
| Abstract: | This paper estimates gender differences in access to informal information regarding the labor market. We conduct a large-scale field experiment in which real college students seek information from 10,000 working professionals about various career paths, and we randomize whether a professional receives a message from a male or a female student. We focus the experimental design and analysis on two career attributes that prior research has shown to differentially affect the labor market choices of women: the extent to which a career accommodates work/life balance and has a competitive culture. When students ask broadly for information about a career, we find that female students receive substantially more information on work/life balance relative to male students. This gender difference persists when students disclose that they are concerned about work/life balance. In contrast, professionals mention workplace culture to male and female students at similar rates. After the study, female students are more dissuaded from their preferred career path than male students, and this difference is in part explained by professionals' greater emphasis on work/life balance when responding to female students. Finally, we elicit students' preferences for professionals and find that gender differences in information provision would remain if students contacted their most preferred professionals. |
| Keywords: | career information, gender, discrimination, correspondence study |
| JEL: | C93 J16 J24 J71 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14072&r=all |
| By: | Philippe Aghion; Antonin Bergeaud; Richard Blundell; Rachel Griffith |
| Abstract: | Matched employee-employer data from the UK are used to analyze the wage premium to working in an innovative firm. We find that firms that are more R&D intensive pay higher wages on average, and this is particularly true for workers in some low-skilled occupations. We propose a model in which a firm's innovativeness is reflected in the degree of complementarity between workers in low-skill and high-skilled occupations, and in which non-verifiable soft skills are an important determinant of the wages of workers in low-skilled occupations. The model yields additional predictions on training, tenure and outsourcing which we also find support for in data. |
| Keywords: | innovation, skill-based technological change, wage, complementarity |
| JEL: | O33 L23 J31 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1665&r=all |
| By: | Jan-Emmanuel De Neve; Filip Gesiarz; Tali Sharot |
| Abstract: | Factors beyond a person's control, such as demographic characteristics at birth, often influence the availability of rewards an individual can expect for their efforts. We know surprisingly little how such pay-gaps due to random differences in opportunities impact human motivation. To test this we designed a study in which we arbitrarly varied the reward offered to each participant in a group for performing the same task. Participants then had to decide whether or not they were willing to exert effort to receive their reward. Unfairness reduced participants' motivation to pursue rewards even when their relative position in the distribution was high, despite the decision being of no benefit to others and reducing reward for oneself. This relationship was partially mediated by participants' feelings. In particular, large disparity was associated with greater unhappiness, which was associated with lower willingness to work - even when controlling for absolute reward and its relative value, both of which also affected decisions to pursue rewards. Our findings suggest pay-gaps can trigger psychological dynamics that hurt productivity and well-being of all involved. |
| Keywords: | inequality, pay-gaps, motivation, effort, affect, reward |
| JEL: | D31 D91 J22 |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1664&r=all |
| By: | Ranganathan, Aruna (Stanford U) |
| Abstract: | This paper uses ethnographic and interview data about four cases in two work settings in India to examine identification as a factor in workers' reactions to workplace change. Novel technology and management practices are frequently introduced into work settings as the world of work changes. Workers tend to cooperate more with some workplace changes than with others. The previous employment relations literature has invoked interests, cultural values and worker power to explain workers' responses to change. This paper introduces an additional factor: whether a change fosters or impairs workers' identification with their work. It examines identification at three levels--occupational, organizational and that of the work itself--and finds that workers are more likely to cooperate with workplace change that protects and fortifies their pre-existing sources of identification. |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3722&r=all |
| By: | Briscese, Guglielmo (University of Chicago); Feltovich, Nick (Monash University); Slonim, Robert (University of Sydney) |
| Abstract: | Firms can donate a share of profits to charity as a form of corporate social responsibility (CSR). Recent experiments have found that such initiatives can induce higher effort by workers, generating benefits for both sides of the labour market. We design a novel version of the gift-exchange game to account for self-selection, and find that wages remain the most effective incentive to attract and motivate workers, with corporate donations playing a smaller role than previously suggested. We also show that firms substitute donations to charity with lower wage offers, keeping their profits constant but reducing workers' earnings. Initiatives of corporate philanthropy can thus be marginally beneficial for firms, but considerably costly for workers. |
| Keywords: | gift exchange, reciprocity, corporate philanthropy, self-selection |
| JEL: | D64 C91 M52 |
| Date: | 2021–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14067&r=all |