This study investigates whether paying higher wages motivates employees to provide higher effort and whether firm profit moderates this relation. Consistent with gift exchange (Akerlof 1982) and reciprocity (Rabin 1993) models, my experimental results show that workers provided more effort when they were paid higher wages even though there was no ex post financial reward for doing so. Moreover, firm profit influenced the relation between wages and effort. Workers provided higher effort when firm profit decreased compared to when it increased. This suggests that the degree of reciprocity is affected by firm profit. However, workers' responded asymmetrically to firm profit, in that they behaved as if they expected to share in firm profit increases but not decreases. Although firms were fairly adept at predicting the profit‐maximizing wage strategy, they apparently did not anticipate workers' reluctance to share in firm profit decreases.
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1 January 2005
Research Article|
January 01 2005
The Combined Effect of Wages and Firm Profit on Employee Effort
R. Lynn Hannan
R. Lynn Hannan
Georgia State University.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2005
The Accounting Review (2005) 80 (1): 167–188.
Citation
R. Lynn Hannan; The Combined Effect of Wages and Firm Profit on Employee Effort. The Accounting Review 1 January 2005; 80 (1): 167–188. https://doi.org/10.2308/accr.2005.80.1.167
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