Wednesday, August 3, 2016

Gilchrist, Luca, and Malhotra (2016) on Salient Workplace Gifts

Duncan S. Gilchrist, Michael Luca, Deepak Malhotra, “When 3 + 1 > 4: Gift Structure and Reciprocity in the Field.” Management Science, published online in Articles in Advance, January 19, 2016 [pdf of earlier version here]. 

• Previous experiments on whether an unexpected gift leads workers to increase their productivity – as a sort of reciprocal response to the gift – generally have not been able to distinguish between whether any productivity boost is due to the additional payment being a “gift,” and just the fact that the worker is being paid more. Perhaps the usual market price establishes a reference point, and any wage above that point is viewed as a gift, even if it is not framed as one. 

• The authors devise a natural field experiment – the subjects do not know that they are taking part in an experiment – to try to disentangle the effect of a higher wage from the effect of a gift. 

• Workers who have indicated interest are recruited for an online data entry position, one that only lasts four hours with no possibility of continued employment. They are offered randomly assigned wages of either $3 per hour, $4 per hour, or, $3 per hour followed by an unexpected bonus of an additional $1 per hour announced after the job has been accepted. Even the $3 per hour wage, incidentally, is a highly competitive wage offer for these workers; about 230 workers are hired. 

• Workers who receive the wage of $3 plus the $1 per hour gift show a 20% higher productivity compared to either the $4 per hour or $3 per hour workers; the productivity boost is maintained throughout the 4-hour length of the work. There is no statistical difference between the productivity of the $3 per hour and the $4 per hour workers. 

• The authors conclude that what matters for productivity is not just how much you pay, but how the payment is framed. Note that the $4 per hour workers and the $3 per hour plus $1 per hour bonus workers receive identical payments, but the workers who receive some of their pay as a gift are more productive.

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