Work meaning and labour supply
Final Report Abstract
In this project we examine the importance of non-monetary attributes for the decision to take up a job and job performance by combining a representative German household survey with a large-scale online experiment. The survey is the PASS, an annually conducted panel study targeting unemployed individuals to collect information on demographics and labor market history. We invited individuals from this sample to participate in our online experiment that aims at eliciting reservation wages and effort for a one hour real task. The participants were randomly assigned to the work meaning treatment. In the high meaning treatment the participants were told that conducting the task yields important contribution to medical research; in the low meaning treatment the task people were told that the data will be stored. The online experiment was conducted in August 2017. A second round of the experiment was planned to take place at the same time in August 2018. We deviate from this plan for two reasons: First, the response rates for unemployed individuals were already quite low in the first round. Expecting attrition in the second round, the number of observations were too low to conduct a solid empirical analysis. The second albeit minor reason was that I moved to the Netherlands and thus the funding for a second round was not available anymore. For these reasons we had to refrain from addressing the fourth research question in the original proposal. Concerning the first two research questions, our empirical and theoretical analysis suggests that unemployed individuals take high work meaning as a signal of unfairly high payoffs for employers and thus request higher reservation wages. However, conditionally on receiving at least the requested reservation wage unemployed individual increase the exerted effort in the job and compensate for the difference in job performance to employed individuals. The findings have important implication on how to design labor market policies to increase reemployment of long-term unemployed individuals. In the third research question we test what survey measures of the reservation wage reveal about individual labor supply, i.e., an individual's willingness to substitute leisure. We combine the survey reservation wage with the reservation wage elicited in the online experiment. We find that these two measures are highly correlated, confirming the hypothesis that reservation wages taken in survey indeed do not only reflect job search concerns but also the individual’s willingness to substitute leisure by consumption. The results on gender heterogeneity found in the experiment motivate a follow-up project, “Women and Non-Wage Attributes: Evidence on the Firm- Level” in which we investigate the role of valuation of non-wage attributes for within-firm wage position of men and women. The results of this project are particularly useful in designing labor market policies that incentivize individuals to take up jobs and be productive. We can derive explanations on why long-term unemployment is so persistent and implications on how increase labor force participation and productivity.
Publications
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“Reservation wages and labor supply”, CentER Discussion Paper; Vol. 2018-054
Kesternich, I., Schumacher, H., Siflinger, B.M. and Valder, F.
