The wages of pay cuts: evidence from a field experiment

To understand why firms rarely cut nominal wages, we hired workers for a data entry task, paid them a high wage and then offered some of the work-ers the opportunity to keep working, albeit for a lower wage. We framed the new wage offer in different ways across treatment groups. Workers were more likely to reject lower offers, but “reasonable ” justifications largely eliminated this effect. Not all justifications were effective—justifying the cut on the ground that it would increase our profits actually increased quits. We also measured whether the treatments affected quality, trust and cooperation. The “profits” treatment reduced cooperation and possibly reduced quality; the other treat-ments had generally weak or nonexistent effects