Lab Labor: What Can Labor Economists Learn from the Lab?

Abstract

Lab Labor: What Can Labor Economists Learn from the Lab? *This paper surveys the contributions of laboratory experiments to labor economics. We begin with a discussion of methodological issues: why (and when) is a lab experiment the best approach; how do laboratory experiments compare to field experiments; and what are the main design issues? We then summarize the substantive contributions of laboratory experiments to our understanding of principal-agent interactions, social preferences, unionfirm bargaining, arbitration, gender differentials, discrimination, job search, and labor markets more generally. JEL Classification:C9, J0Keywords: labor economics, laboratory experiments, principal-agent theory, personnel economicsCorresponding author:Peter Kuhn Department of Economics University of California Santa Barbara, CA 93106 USA E-mail: pjkuhn@econ.ucsb.edu * Manuscript prepared for Handbook of Labor Economics, volume 4, Orley Ashenfelter and David Card, editors. We thank Michael Kuhn and Loni Spilberg for excellent research assistance. We have done our utmost to identify as many lab experimental papers in labor economics as possible, and to represent the results of these papers accurately. Given the volume of recent research in this area and the deadline we have faced in writing this review, it is inevitable that we have missed some important work. We also sincerely hope that we have not mischaracterized any paper's conclusions. The authors apologize for these limitations in advance and nevertheless hope that our review provides a helpful guide to the 'lab labor' literature to date.The economics literature has witnessed an explosion of laboratory experiments in the past 20 years. Many of these experiments have focused on topics that are central to the field of labor economics, including how workers respond to various forms of compensation, and the economics of discrimination, arbitration, bargaining, and matching. In this chapter we survey the contributions of laboratory experiments to our understanding of these questions.We begin our review with a discussion of methodological issues: First, we pose the general question of why (and more importantly when) a labor economist might want to conduct a laboratory experiment: What types of questions, if any, are laboratory experiments best suited to answer? How do laboratory experiments compare to field experiments? Next, once one has decided to conduct a laboratory experiment, how should it be designed? Here we review the main methodological decisions an experimenter typically needs to make, and the advantages and disadvantages of the various choices.The second half of our review turns its attention to the substantive issues in labor economics that have been addressed using laboratory experiments. While these are wideranging, we focus our review on the set of issues that have generated probably the largest volume of experimental papers in labor economics: the effects of compensation policies on the supply of effort by workers. We do this in two parts. The firs...

Principal–Agent Settings with Random Shocks

“…Consistent with previous literature on gift exchange (Fehr et al, 1997(Fehr et al, , 2007Charness and Kuhn, 2011), we find that bonus contracts without shocks encourage effort and wages well above standard predictions. However, we also find evidence that this result is partially mitigated when random shocks are present.…”

“…Despite settled theoretical predictions, there is very little empirical research investigating how luck and effort play in remuneration in settings where effort is unobservable (Charness and Kuhn, 2011). This is understandable because it is difficult to measure empirically to what degree effort versus luck impacts individual performance.…”

Corporate Philanthropy and Productivity: Evidence from an Online Real Effort Experiment

“…Productivity in the first session was lower for those who dropped out after either the first, second, or third session compared to those who completed the experiment (see Table 1a in the Online Appendix). This suggests that dropping 14 In particular, in treatments involving a charity, the question was posed in the following way: "If in the following 60 minutes you complete 50 entries, how much will you earn for this session? How much will the charity receive?"…”

“…Methodologically, an experimental approach to assessing the effects of alternative types of incentives on productivity has several known advantages, aptly summarized in Charness and Kuhn (2011). Experiments have been recently used to shed light on a variety of issues as diverse as promotion tournaments (Altmann et al, 2012), the role of incentives for the self-selection of workers (Dohmen and Falk, 2009), and the role of reference points for the provision of effort (Abeler et al, 2011).…”

Testing Canonical Tournament Theory: On the Impact of Risk, Social Preferences and Utility Structure

“…Given the vast literature on tournaments, we only review literature that is directly relevant to our research. To motivate our contribution, we begin by pointing out that most prior experimental literature on tournaments focus on "incentive effects," which is to examine how agents respond to tournament prize structures (for a review see, Charness and Kuhn 2011). Typically, the tournament scheme is exogenously imposed on agents by experimenters and there is no explicit interaction within the experiment between agents and principals.…”