Abstract
We make two main contributions in this article. We examine whether social comparisons affects workers’ performance when a firm can choose workers’ wages or let them choose their own. Firms can delegate the wage decision to neither, one or both workers in the firm. We vary the information workers receive, finding that social comparisons concerning both wages and decision rights affect workers’ performance. Our second contribution is methodological. We find that our treatment effects are present with both stated effort and a real-effort task, which suggests that both approaches may yield similar results in labor experiments.
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Notes
For convenience, in the paper we shall consider the firm as female and the workers as male and female.
Kocher et al. (2013) discuss delegation in a voting context. In a public-good game, each group must (no other option) elect a delegate who makes a binding decision for the contribution of each member.
This paper also connects to the large theoretical literature on delegation. For a survey on theoretical delegation see Gibbons et al. (2013).
In treatments with stated effort, even minimum effort by workers leads to positive benefits for firms. In order to maintain this crucial aspect for the real-effort task, we use the term (1 + s 1 )/10 to compute firms’ profits.
Given that the most important finding with stated effort involves the comparison of the Baseline treatment with the DWT, we did not conduct a WT-RE treatment.
Throughout the paper, we round off all probabilities to three decimal places.
All non-parametric tests reported are two-tailed and reflect individual-level data unless otherwise stated. In order to compute individual-level data, for each subject we separate delegation and non-delegation decisions and calculate the average of the variables for both situations. Each subject counts as one single observation in the test.
Appendix 2 displays, for all treatments, the evolution of effort and wages over time under delegation and under non-delegation.
Note that, as might be expected, the effects of delegation in the Baseline treatment (where no social information is provided) are similar to those in the one-worker case in Charness et al. (2012).
The Spearman correlation test for the correlation between the difference in wages and discrimination in delegation is 0.427.
We also explore the reasons why firms delegate the wage decision to their workers. We perform logit regressions in Table 15 in Appendix 1. The dependent variable is a binary variable that takes the value 1 if the employer delegates the wage decision to a particular worker and 0 otherwise. As explanatory variables, we use: (i) the profits obtained by the firm in the previous period due to a particular worker (π t−1); (ii) a dummy, (Delegation t − 1 ), which is 1 when the firm delegated in the previous period and 0 otherwise; (iii) the difference between the desired and the actual effort in the previous period, \( {\hat{e}}_{t - 1} - e_{t - 1} \) and (iv) the interaction between π t−1 and Delegation t − 1 . The two main findings are: (i) the closer the actual effort level to the desired effort, the more likely it is that the firm allows the worker to choose his wage in the next period; and (ii) the firms’ profits conditional on having delegated the wage decision in the previous period have a positive effect on the probability of delegating. These results suggest that in a multi-worker setting firms also use wage delegation as a tool to reward good employees.
In particular, in WT, of the 106 times the firm delegated to just one worker, 79 times the firm delegated to the worker with higher effort in t − 1, 22 times to the worker with lower effort and five times when both workers exerted the same effort in t − 1. The binomial test finds the difference in rates to be significantly different (Z = 5.672, p = 0.000). In DWT, of the 72 times the firm delegated to just one worker; 44 times the firm delegated to the worker with higher effort in t − 1, 22 times to the worker with lower effort, and six times when both workers exerted the same effort in t − 1. The binomial test finds the difference in rates to be significantly different (Z = 2.708, p = 0.003). In the Baseline, of the 109 times the firm delegated to just one worker, 55 times the firm delegated to the worker with the higher effort in t − 1, 43 times to the worker with lower effort, and 11 times when the workers exerted the same effort in t − 1. The binomial test finds the difference in rates to not be significantly different (Z = 1.212).
We take these subsamples for the same reason that we did so in the corresponding Table 3.
Note that the lack of significance of positive delegation discrimination could be due to the low number of observations found for this particular case.
In particular, in DWT, of the 54 times that the firm delegated to just one worker, 36 times this was to the worker with the higher effort in t − 1, 12 times to the worker with the lowest effort, and six times the workers exerted the same effort. The binomial test finds the difference in rates to be significantly different (Z = 3.464, p = 0.003). In the Baseline, of 52 times that the firm delegated to just one worker, 37 times this was to the worker with the higher effort in t − 1, nine times to the worker with the lowest effort, and six times the workers exerted the same effort. The binomial test finds the difference in rates to be significantly different (Z = 4.128, p = 0.000).
With a real-effort task, this rise of the total earnings under delegation is driven by the wage increase. As explained in the previous section, in this scenario firms do not earn significantly more under delegation than under no delegation.
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Acknowledgements
Financial support from the Spanish Ministry of Education and Science (SEJ2010-17049/ECON; SEJ2009-11117/ECON, ECO2012-36695), the Division of Social Sciences and the Department of Economics at UCSB, and Junta de Andalucía (P07-SEJ-02547; P07-SEJ-3261) is gratefully acknowledged.
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Appendices
Appendix 1
Appendix 2
See Figs. 3, 4, 5, 6, 7 and 8.
Effort over time (stated effort)
Effort over time (real effort)
Wage over time (stated effort)
Wage over time (real effort)
#delegations over time (stated effort)
#delegations over time (real effort)
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Charness, G., Cobo-Reyes, R., Lacomba, J.A. et al. Social comparisons in wage delegation: experimental evidence. Exp Econ 19, 433–459 (2016). https://doi.org/10.1007/s10683-015-9448-x
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DOI: https://doi.org/10.1007/s10683-015-9448-x