Mandated Wage Increases and Gift-Exchange in Labor Markets

Using an experimental methodology, I examine the productivity effects of increases in wages due to an externally imposed mandate in comparison to wage increases due to the generosity of the employer. This paper also introduces a new experimental framework for exploring the concept of gift-exchange in labor markets using groups of participants acting as employers and employees on a real effort task. We find that there is a significant effect of wages on effort levels. In addition, we find that when wages are increased due to an external mandate—all else equal—workers increase their effort levels by less than if their wages were increased due to an active choice by their employer.Economics-URO Summer Research FellowshipSTEP FellowshipNo embargoAcademic Major: EconomicsAcademic Major: Mathematic