Only If You Pay Me More: Field Experiments Support Compensating Wage Differentials Theory
61 Pages Posted: 22 Oct 2015
Date Written: October 20, 2015
Abstract
Compensating wage differentials is Adam Smith’s idea that wage differences equalize differences in job and worker characteristics. Other than risk of death, however, no job characteristics have consistently been found to affect wages, likely because of problems with self-selection and unobservable job characteristics. We run experiments in an online labor market, randomizing offered pay and job characteristics, thereby overcoming both problems. We find, as predicted by our model, that increasing job disamenities significantly reduces both likelihood of working and amount of work supplied. Correspondingly, the wage increases necessary to compensate workers for worse job disamenities are substantial, supporting the theory.
JEL Classification: J3, J2
Suggested Citation: Suggested Citation