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Deferred compensation and gift exchange: an experimental investigation into multi-period labor markets

Huck, S.; Seltzer, J.; Wallace, B.; (2004) Deferred compensation and gift exchange: an experimental investigation into multi-period labor markets. (ELSE Working Papers 87). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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Abstract

This paper examines the relationship between firms’ wage offers and workers’ supply of effort using a three-period experiment. In equilibrium, firms will offer deferred compensation: first period productivity is positive and wages are zero, while third period productivity is zero and wages are positive. The experiment produces strong evidence that deferred compensation increases worker effort; in about 70 percent of cases subjects supplied the optimal effort given the wage offer, and there was a strong effort response to future-period wages. We also find some evidence of gift exchange; worker players increased the effort levels in response to above equilibrium wage offers by a human, but not in response to similar offers by a computer. Finally, we find that firm players who are initially hesitant to defer compensation learn over time that it is beneficial to do so.

Type: Working / discussion paper
Title: Deferred compensation and gift exchange: an experimental investigation into multi-period labor markets
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14588
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