Asymmetric labor-supply responses to wage-rate changes: Evidence from a field experiment


Doerrenberg, Philipp ; Duncan, Denvil ; Löffler, Max


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URL: https://ub-madoc.bib.uni-mannheim.de/47856
URN: urn:nbn:de:bsz:180-madoc-478569
Document Type: Working paper
Year of publication: 2016
The title of a journal, publication series: IZA Discussion Paper Series
Volume: 9683
Place of publication: Bonn
Publishing house: Forschungsinstitut zur Zukunft der Arbeit
Publication language: English
Institution: Business School > ABWL u. Betriebswirtschaftliche Steuerlehre (Dörrenberg 2019-)
License: CC BY 4.0
Subject: 330 Economics
Abstract: The standard labor-supply literature typically assumes that the labor supply response to wage increases is the same as that for equivalent wage decreases. However, evidence from the behavioral-economics literature suggests that people are loss averse and thus perceive losses differently than gains. This behavioral insight may imply that workers respond differently to wage increases than to wage decreases. We estimate the effect of wage increases and decreases on labor supply using a randomized field experiment with workers on Amazon's Mechanical Turk. The results provide evidence that wage increases have smaller effects than wage decreases, suggesting that the labor-supply response to wage changes is asymmetric. This finding is especially strong on the extensive margin where the elasticity for a wage decrease is twice that for a wage increase. These findings suggest that a reference-dependent utility function that incorporates loss aversion is the most appropriate way to model labor supply.

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Doerrenberg, Philipp ; Duncan, Denvil ; Löffler, Max (2016) Asymmetric labor-supply responses to wage-rate changes: Evidence from a field experiment. Open Access IZA Discussion Paper Series Bonn 9683 [Working paper]
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