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

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 descriptio...

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Bibliographic Details
Published in:Management science 2014-05, Vol.60 (5), p.1148-1160
Main Authors: Hossain, Tanjim, Li, King King
Format: Article
Language:English
Subjects:
Analysis
crowding out
Crowding out effect
Data entry
Data lines
Error rates
Experiments
Field experiments
intrinsic and extrinsic motivations
Job descriptions
Labor market
Labor markets
Labor supply
Labour market participation
Labour supply
Management science
Monetary incentives
Motivation
natural field experiment
Organizational behaviour
Participation
Preferences
Quality of work
social preference
Statistics
Studies
Wage rate
Wage rates
Wages & salaries
Work environment
Workers
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Summary: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.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2013.1807