Crowding Out in the Labor Market: A Prosocial Setting Is Necessary

Abstract

Recent studies, mostly from prosocial settings, suggest that monetary rewards may crowd out effort exertion by economic agents. We design a field experiment with data entry workers to investigate the extent of such crowding-out effects in a labor market. Using simple variations in the job description of a task, we induce a natural work setting under the work frame and emphasize social preference under the social frame. We find that crowding out of labor participation critically depends on framing—whereas small monetary rewards reduce the participation rate under the social frame, the participation rate is nondecreasing in the wage rate under the work frame. Moreover, among the workers who participate in the task, those who receive a positive wage perform a considerably higher amount of work than those who are paid zero wage under either frame. Thus, there is weak evidence of crowding out only when the task is explicitly given a prosocial flavor and not under a regular work setting. Furthermore, emphasizing social preference in the labor market in such a way reduces the overall labor supply and seems to have an adverse effect on the quality of work. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1807 . This paper was accepted by John List, behavioral economics.

Framing manipulations in contests: A natural field experiment

“… Prendergast (1999) presents an excellent survey of the literature on incentives to agents in firms.2 For an extensive survey on evidence of framing effects from the field, seeDellaVigna (2009), especially Section 4.1. For a recent illustration, seeHossain and Li (2014).3 For some other examples of field experiments comparing economically different incentive schemes, seeBandiera et al (2005) andShi (2010). Our paper is closely related to recent work byArmantier and Boly (2013) who, using laboratory and framed field experiments, show that bonus schemes that combine reward and punishment conditional on exogenously set targets increases effort provision.…”

Anatomy of a Contract Change

“…Permanent workers, who have a long-term relationship with the employer, are both well aware of the increased costs the new contract imposes on the owners and may be more likely to perceive the substantial wage increase as being prosocial. Both these factors may also explain their differential response relative to temporary workers: see Hennig-Schmidt, Rockenbach, and Sadrieh (2010) and Hossain and Li (2014), respectively.…”

The Behavioralist as Policy Designer: The Need to Test Multiple Treatments to Meet Multiple Targets

“…A direct implication of such models is that framing incentives through the lens of what is given up should an agent fail to meet a target should have a greater impact on subsequent patterns of effort than if the incentive is framed through what would be gained should the target be reached. Importantly, behavior consistent with this prediction has been shown in a variety of field experiments (Armantier and Boly 2015;Hong, Hossain, and List 2015;Hossain and Li 2013;Hossain and List 2012;Levitt et al 2016;de Quidt 2014) exploring the framing of incentives and subsequent worker effort.4…”