1 It’s Not the Size of the Gift; It’s How You Present It: New Evidence on Gift Exchange from a Field Experiment

Behavioral economists argue that above-market wages elicit reciprocity, causing employees to work harder – even in the absence of repeated interactions or strategic career concerns. In a field experiment with 266 employees, we show that paying above-market wages, per se, does not have an effect on effort. However, structuring a portion of the wage as a clear and unexpected gift (by hiring at a given wage, and then offering a raise with no further conditions after the employee has accepted the contract) does lead to persistently higher effort. Consistent with the idea that the recipient’s interpretation of the wage as a gift is an important factor, we find that effects are strongest for employees with the most experience and those who have worked most recently – precisely the individuals who would recognize that this is a gift