Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

Thursday, November 13, 2008

Reading Group

Posted by Simon Halliday | Thursday, November 13, 2008 | Category: |

We have a voluntary extra-curricular reading group here at Siena organise by one of the young assistant professors, Giulio Zanella. The idea is that we should each present a paper approximately once every couple of months, while ensuring that we read the papers that others present. We generally present for about 1-1 1/2 hours and then try to chat about the paper for the 30 minutes following that.

Anyway, this past Tuesday I presented a recent paper by Ernst Fehr and Lorenz Goette, "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment." There are two purposes to the paper:

  1. to demonstrate that there is a negative effort response to an increase in wage rates, even though there is an overall increase in wage supply
  2. to explain that the loss-averse workers among those in the sample of experimental subjects are those whose actions resulted in the negative wage-effort relationship.
The importance of 1) is that research has often found that there is not much of a response by workers to a large, temporary and perfectly anticipated increase in wages. They show a significant and large effect.

The consequence of 2) is that there can be heterogeneous preference profiles among consumers/workers and, in particular, that the preferences of consumer-workers that are not consistent with neoclassical theory can have such a strong effect that they override the preferences of those who do display preferences consistent with neoclassical theory and alter the outcome in equilibrium.

I believe that these are all strong points. However, I had a couple of issues with the paper. First, I think that, with their own results, they only provide an upper bound of the behavior of their subjects, given a lower bound which you can deduce from their results (regression 6 in Table 3) a lower relationship between wages and shifts results in a lower estimate of wage-shift elasticity. This implies, furthermore, that the estimate of the negative wage-effort elasticity may not be as strong as they believe it is if subjects are not increasing their wage supply as much as F&G argue they do.

Anyway, I think that the paper, as it stands, is still high quality research and something to which I aspire. I just wish that they had also reported lower-bound estimates using their own numbers - I feel that would have been more intellectually honest. The problem with this though is that their results wouldn't have been as unequivocal then and this may have reduced the impact of their paper.

You can access my slides here.

Ernst Fehr & Lorenz Goette, 2007. "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment," American Economic Review, American Economic Association, vol. 97(1), pages 298-317, March

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