Lab Labor: What Can Labor Economists Learn from the Lab?

This paper surveys the contributions of laboratory experiments to labor economics. We begin with a discussion of methodological issues: why (and when) is a lab experiment the best approach; how do laboratory experiments compare to field experiments; and what are the main design issues? We then summarize the substantive contributions of laboratory experiments to our understanding of principal-agent interactions, social preferences, union-firm bargaining, arbitration, gender differentials, discrimination, job search, and labor markets more generally.personnel economics, principal-agent theory, laboratory experiments, labor economics

Use and Abuse of Authority

Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz’s (1972) critique of the Coasian approach

Gainsharing: A Critical Review and a Future Research Agenda

This paper provides a critical review of the extensive literature on gainsharing. It examines the reasons for the fast growth in these programs in recent years and the major prototypes used in the past. Different theoretical formulations making predictions about the behavioral consequences and conditions mediating the success of these programs are discussed and the supporting empirical evidence is examined. The large number of a theoretical case studies and practitioner reports or gainsharing are also summarized and integrated. The article concludes with a suggested research agenda for the future

Mechanism Design for Team Formation

Team formation is a core problem in AI. Remarkably, little prior work has addressed the problem of mechanism design for team formation, accounting for the need to elicit agents' preferences over potential teammates. Coalition formation in the related hedonic games has received much attention, but only from the perspective of coalition stability, with little emphasis on the mechanism design objectives of true preference elicitation, social welfare, and equity. We present the first formal mechanism design framework for team formation, building on recent combinatorial matching market design literature. We exhibit four mechanisms for this problem, two novel, two simple extensions of known mechanisms from other domains. Two of these (one new, one known) have desirable theoretical properties. However, we use extensive experiments to show our second novel mechanism, despite having no theoretical guarantees, empirically achieves good incentive compatibility, welfare, and fairness.Comment: 12 page

Social comparison in the workplace: evidence from a field experiment

We conducted a randomized field experiment to examine how workers respond to wage cuts, and whether their response depends on the wages paid to coworkers. Workers were assigned to teams of two, performed identical individual tasks, and received the same performance‐independent hourly wage. Cutting both team members’ wages caused a substantial decrease in performance. When only one team member’s wage was cut, the performance decrease for the workers who received the cut was more than twice as large as the individual performance decrease when both workers’ wages were cut. This finding indicates that social comparison processes among workers affect effort provision because the only difference between the two wage cut conditions is the other team member’s wage level. In contrast, workers whose wage was not cut but who witnessed their team member’s pay being cut displayed no change in performance relative to the baseline treatment in which both workers’ wages remained unchanged, indicating that social comparison exerts asymmetric effects on effort.Compensation, fairness, field experiment, social comparison

The Goals and Assumptions of Conflict Management in Organizations

[Excerpt] This chapter examines how different goals and assumptions about conflict in organizations shape perspectives on managing conflict and resolving disputes. Four frames of reference are described: the neoliberal egoist perspective emphasizing the operation of the free market as the ideal method of resolving conflict; the critical perspective emphasizing broad societal divisions between labor and capital as the source of conflict; the unitarist perspective viewing conflict as primarily a function of interpersonal differences and organizational dysfunction, which can be remedied by improved managerial practice; and the pluralist perspective emphasizing the mixture of common and competing interests in the employment relationship, which requires institutional interventions to remedy the inequality of bargaining power that produces conflict. The pluralist perspective may best balance the often competing goals of efficiency, equity, and voice. It is described further in this chapter together with its implications for the design of dispute resolution procedures and conflict management systems

Self-Serving Assessments of Fairness and Pretrial Bargaining

A persistently troubling question in the legal-economic literature is why cases proceed to trial. Litigation is a negative-sum proposition for the litigants-the longer the process continues, the lower their aggregate wealth. Although civil litigation is resolved by settlement in an estimated 95 percent of all disputes, what accounts for the failure of the remaining 5 percent to settle prior to trial

Lab Labor: What Can Labor Economists Learn from the Lab?

This chapter surveys the contributions of laboratory experiments to labor economics. We begin with a discussion of methodological issues: why (and when) is a lab experiment the best approach; how do laboratory experiments compare to field experiments; and what are the main design issues? We then summarize the substantive contributions of laboratory experiments to our understanding of principal-agent interactions, social preferences, union-firm bargaining, arbitration, gender differentials, discrimination, job search, and labor markets more generally.