Several theories suggest that pay raises below a reference point will reduce job performance. Final offer
arbitration for police unions provides a unique opportunity to examine these theories, as the police
officers either receive their requested wage or receive a lower one. In the months after New Jersey police
officers lose in arbitration, arrest rates and average sentence length decline and crime reports rise relative
to when they win. These declines are larger when the awarded wage is further from the police union's
demand. The findings support the idea that considerations of fairness, disappointment, and, more
generally, reference points affect workplace behavior.