Do Workers Feel Entitled to High Wages? Evidence from a Long-Term Field Experiment

Abstract

We followed fieldworkers administering a household survey over a 12-week period and examined how their reciprocal behavior towards the employer responded to a sequence of exogenous wage increases and wage cuts. To disentangle the effects of reciprocal behavior from other explicit incentives that occur naturally in long-term employment relationships, we devised a novel measure of effort that fieldworkers perceived as unmonitored. While wage increases had no significant effect, wage cuts back to the initial wage and then below the initial wage led to a strong and persistent decline in unmonitored effort, even though compensation throughout the experiment remained several times higher than the going market wage. The estimates provide clear evidence of a highly asymmetric reciprocity response to wage changes and imply that fieldworkers quickly came to feel entitled to higher wages when deciding on reciprocity. Together, these findings explain why firms rarely cut wages, an empirical phenomenon known as Downward Wage Rigidity. (with André Kurmann, Federal Reserve Board)